LottoGopher Holdings: When a Company Chases Buzzwords

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LottoGopher Holdings Inc (CSE: LOTO) is a prime example of the risk in investing on the junior markets. After the news that was released yesterday morning, its clear that this company has no formal direction. Rather, management is instead focused on buzzword investments than that of the lottery industry.

We previously covered LottoGopher at the start of January, when the hype was at a high point during an open placement. The raise which was initiated on December 4, 2017, finally closed on January 22, at an oversubscribed $3.7 million. Through this raise over 28 million new shares were introduced to the market, with an equal amount of cheap warrants. Just over a week later, the company elected to scrap its current business plan and swap it out for that of an investment firm. Nothing like scorning brand new investors of the company.

 

LottoGopher Holdings: When a Company Chases Buzzwords

 

LottoGophers initial contact with blockchain

The first time that LottoGopher mentioned the word blockchain, the company would have been best to take the hint. Back on July 31, 2017, it was announced that the company would be incorporating the use of NetCents Technology’s payment processing system. Specifically, it would utilize a blockchain based platform to do so.

Management comments on the agreement between NetCent Technology and LottoGopher.
Management comments on the agreement between NetCent Technology and LottoGopher.

In all likelihood, based on the recent history of LottoGopher the term blockchain was utilized to generate some excitement around the stock. We’re all well aware of the bull run the associated sector saw in 2017 with regards to this technology. However, it actually had the opposite effect on LOTO. Rather than generate some positive momentum around the stock, it actually caused the value of the equity to tumble.

LottoGophers overall bearish trend for 2017.
LottoGopher’s overall bearish trend for 2017.

Since the date the company first issued a news release with the term blockchain within it, the value of the equity tumbled significantly. In fact, as can be seen, it hasn’t ever recovered from this initial fall from grace. From a high of $0.58 on the date of the news release, the company has since bottomed out at $0.11 per share and posted a mild recovery.



LottoGopher’s attempt to capitalize on a hot industry

Dissatisfied with the previous results of its blockchain related news release, the company decided to take another crack at it. This time however, it tackled the sector head on. To do so, on November 13 the company announced that it would be developing a blockchain of its own, for use in the lottery industry.

LottoGopher's formal entrance into the blockchain sector.
LottoGopher’s formal entrance into the blockchain sector.

The very loose concept that the company had in mind was for the technology to verify ticket ownership. This would be particularly useful in their current role, as it allows the company to provide a form of proof of ownership for tickets procured over online exchanges. However, the company didn’t drill down into specifically what they were focused on. Rather, they simple issued a broad statement indicating it would be used “as it relates” to online lottery. This was unconvincing to investors.

It is likely that a large reason behind the lack of buy in from investors, is due to a statement made within the same news release by the company.

The answer to the question of "What is a blockchain?" as viewed by LottoGopher.
The answer to the question of “What is a blockchain?” as viewed by LottoGopher.

At the bottom of page one of the news release, the company answered the question of “what is a blockchain?” in a very telling manner. It’s first response, was that it is expected to be a top trend for 2018. The company went on in depth on page two for what a blockchain actually is, however it didn’t matter all that much. This little tidbit at the bottom of the first page said enough, in that it essentially declared that the company was chasing an expected trend for the oncoming year.

Again, the markets reacted in a bearish manner.

The reaction LOTO investors had to the announcement of the entrance to the blockchain sector.
The reaction LOTO investors had to the announcement of the entrance to the blockchain sector.

Yet again, after the announcement that included another hot buzzword, the company’s stock fell. This time, it was a little less dramatic of a fall. However, that’s partially due to the fact that it had little place to go. It appears investors were not too thrilled with this news yet again.

Interestingly, the above bullish momentum that can be seen in mid to late December, is the result of a financing. No other material news was issued for the month of December. On the 27th the first tranche of a small placement was closed, which the markets for one reason or another perceived as being bullish. Also of note, is that this is when the company really started to appear across social media as well. However, correlation is not causation.

 

The latest development in LottoGopher

If you fail, try, try again. The third times the charm. And any other pick-me-up line used when something doesn’t go in your favour. After closing its private placement to the tune of $3.7 million, which was somehow oversubscribed, LottoGopher was back at it with the buzzwords. This time however, it elected to bet the farm on it.

LottoGopher's announcement on its planned change of business.
LottoGopher’s announcement on its planned change of business.

Yesterday, on January 31, 2018, it was announced that the company was going to perform an entire change of business. It would now be operated as an “investment issuer company” that focuses in a number of current buzzword sectors. Namely, those consist of cryptocurrency, blockchain, and now the cannabis sector. It appears the company missed the memo that the current bull market is all but over for the cannabis sector. Timing is everything.

The latest performance of LottoGopher.
The latest performance of LottoGopher after the investment firm news release.

Yet again, investors viewed the buzzword news in a negative light. Surprising, isn’t it?

Now, in LottoGophers defense, they don’t attempt to hide what they are really doing. As identified earlier the company has all but previously stated that they are chasing perceived oncoming trends. In this latest news release, the company did explicitly state as much.

LottoGopher's comments from management on changing business to an investment firm.
LottoGopher’s comments from management on changing business to an investment firm.

What’s the first things investors learn, and its always the hard way? Don’t chase gains.

 

Closing Remarks

For what its worth, the company identified that it would focus on companies that are close to being public so as to be able to achieve returns quickly. These investments may take the form of being passive, or the format of active wherein the company would offer strategic advice. After the returns given to investors over the past year by LOTO, it’s clear what value they can provide to these soon to be public companies.

With any luck, LottoGopher will serve as  a future reminder to both investors as well as small cap companies. Chasing buzzwords is no way to run a business, even if its in a sector in the middle of a massive bull run. Investors view it as shady, and will in turn punish the equity through constant selling as they look to find better quality companies to place their funds in.

Due diligence is everything. For both a company, and investors. Dive Deep.

 


Information for this analysis was found via The CSE, SEDAR, Questrade, and LottoGopher Holdings. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security.