Ominto (OMNT) : Seven Reasons We’re Not Buying

by Sonya Colberg, Senior Editor - 6/27/2017 5:00:57 PM

TheStreetSweeper issues an Ominto Inc. (OMNT) investor alert.

The Boca Raton, Florida company rang the closing bell at the Nasdaq in March to celebrate its uplisting. Nine pending class-action lawsuits and multi-millions in losses later, the stock’s valuation has proceeded to blast up to ~$180 million.

Yet Ominto offers stockholders extreme risks: a questionable multilevel marketing model, inferior competitive position, consistent losses, high stock price, miserable acquisition and essentially no institutional ownership.

TheStreetSweeper’s seven-point reality check suggests the online coupon and cash-back shopping site may be precariously priced to plunge. The company’s website here offers an opposing viewpoint.

*1. Multilevel Marketing Sweat Shop

On the surface, Ominto’s shopping platform, DubLi.com, urges shoppers to sign up for a $99 membership fee. In exchange, members get coupons and cash back for using the website.

But the dirty little secret is how the company really makes its money.

“The reason every one of us left our … home country and flew in here is to change your life,” the sweat-mopping presenter Khalid Shaath says on a presentation for prospective DubLi associates.

(Source: YouTube video, Ominto's DubLi presenter)

Mr. Shaath adds, “The person who invited you here tonight, he told you it is a business opportunity. Fortunately or unfortunately, it’s not. It is a dreams opportunity.”

The company uses what appears to be a multi-level-marketing sweat shop to sell membership in the online coupon service.

Ominto seems to focus most on convincing people to pay the company to become business associates - who pay for Ominto products and try to bring more associates on board – who try to bring aboard more associates – and on – and on.

Clapping, dancing, whooping crowds populate Ominto’s DubLi videos.

 

(Source: YouTube, Ominto’s DubLi meeting)

It’s somewhat like the partying and near-cult flavor that once surrounded Amway - which has settled down after settling a lawsuit in 2010 for $150 million. Independent business owners in the class action complaint alleged the direct sales company operated a pyramid scheme.

And for Ominto associates, there’s nothing to clap about.

Under the company’s “multi-element arrangements,” these folks must pay the company for “business licenses,” membership vouchers, training programs, certification programs and marketing programs. They also buy membership packages to resell.

Ominto’s DubLi offers three levels: business associate, team member and partner. Whenever someone steps up a level, they must dole out more and more money to the company. Some people are practically begging to get out of their DubLi commitment:

(Source:multiplestreams)

People who join the partner program typically pay $2,475 upfront and these partner costs have been reported to be nearly $5,000.

(Source:Company’s DubLi website)

Ominto/DubLi then assists these partners with setting up personal “DubLi branded” web sites where their customers can shop.

So these people are paying DubLi for the privilege of hyping DubLi.

Word is spreading that the multi-level program may be an associate's dream-breaker rather than dream-maker, indicate reviews from a consumer website that notes claimed losses of around $63,000:

 

(Source: pissedconsumer.com)

Unemployed grannies, retired teachers and down-on-their-luck folks may be tossing big bucks into Ominto’s DubLi piggy bank … but guess what? Ominto still can’t turn a profit.

*2. Big Losses, Selling Assets

Ominto losses rose a stunning 46.86% last quarter, hitting $4.45 million. Accumulated losses exceed $66 million.

 

Ominto’s financial picture is so difficult that prior to September 30, 2016, the company’s “facilities in Portland, Oregon; Draper, Utah; Denver, Colorado and Bellevue, Washington were all closed.”

Losses from operations are just getting worse:

(Source: Company SEC filing, TheStreetSweeper)

Meanwhile, a recent acquisition raises more questions about Ominto’s ability to operate a viable business … 

*3. Biz Acquisition: Wanna Be A Star

Ominto woke up one day and decided it ought to be in pictures. So it bought a business completely unrelated to its business of online shopping coupons … an animation production company.

That’s right.

Last December, the company bought 40% interest in Lani Pixels, a Denmark/Dubai 3-D animation company. Ominto touted Lani as a movie and “marketing services” company.

But Lani’s website doesn’t even mention marketing.

And while movie making may sound exciting, film website “IMDb,” indicates Lani’s current untitled project is an indie film – a Denmark project being written and directed by two guys with Lani.

Lani is a very small shop run by a father and son in Denmark. To its credit, Lani has at least one excellent, experienced 3-D artist.

 (Source:coroflot)

But while Lani's management apparently worked on art and directing, the business side performed so poorly that “the Company (Ominto) loaned Lani Pixels $500,000.

*4. Paying $10 Million For Pitiful Revenue Producer

By the time the acquisition smoke cleared, Ominto had paid $10.2 million, (page 6) in stock, cash and debt expenses, for its stake in Lani Pixels, a company with maybe ~$648,000 in annual revenue.

(Source: Company SEC filing)                

So, if Lani’s revenue remained constant – and Lani still hasn’t turned over completed financial statements half-a-year later - it would take 15 years to match the sales price.

Ominto justified buying the tiny, indebted Lani (referred to as "animated movie production") by booking an astonishing $27 million in goodwill - - a picked-out-of-the-air number Ominto chose as the value of Lani’s brand, employee relations and so forth.

 (Source: Company SEC filing, TheStreetSweeper)

Has Lani helped Ominto’s shaky finances? Absolutely not.

Lani recently warned that the segment’s movie production costs later may be  written down … while Lani has worsened the company’s financial situation by close to half a million bucks:

(Source: Company SEC filing, TheStreetSweeper)

Auditing these miserable financials had been handled by accounting firm Mayer Hoffman McCann P.C.(MHM). The SEC ordered the firm in May 2015 to cease-and-desist and pay a $675,000 civil penalty related to independence issues with another company. Omnito dismissed MHM on May 19, 2017.

But investors may not be much better off with financials under scrutiny of the new auditors. The replacement, Morrison Brown Argiz & Farra, LLC (MBAF), has been inspected by The Public Company Accounting Oversight Board’s inspection team, which found deficiencies in an audit performed by the firm.

*5. Immense: Competition

As Ominto struggles, it is trying to get a foot-hold in the cash-back field crowded with big household brands.

Well-known giants include:

*Ebates

*ShopAtHome

*Fat Wallet

Those companies have the name recognition, smart people and money vital to this rapidly morphing field.

When someone uses DubLi to buy products from affiliated retailers, Ominto gets a commission and shares it with the shopper as a cashback.

But retailers don’t need those services much anymore. They know how to use Twitter and other means to engage their own consumers.

As more and more social-media savvy retailers cut out the middleman, Ominto stands to lose more and more dollars.

*6. Institutions: Don’t Call Us, We’ll Call You

Ominto can’t seem to attract more than a sideways glance from big, reputable institutions. They have essentially zero interest in Ominto stock:

 (Source: Nasdaq)

Our rule of thumb: If the institutions aren’t buying a stock, neither are we.

*7. Investigations Pile Up

Amid hype of a new web page and appointment of new chairman, Mitch Hill formerly of Buy.com and the latest in a 4-year leadership shuffle including three departing CFOs and a departing CEO, law firms are taking notice of Ominto.

A stunning nine law firms thus far are investigating Ominto on behalf of stockholders for potential federal securities violations.

*Conclusion

Ominto can’t be a ~$180 million company unless it is profitable or at least offers hope of profitability in the foreseeable future … we’re not buying it.

Investors might want to avoid the stock and let the brow-mopping Ominto/DubLi presenter in the videos do all the sweating.

TheStreetSweeper expects the stock to drop by 30% near-term and will likely soon slip below $3.

Don’t miss our sidebars, “Ominto: Revenue Depends On Recruits,” and “Ominto: Multilevel Marketing Or Possibly A Lot Worse…”

* Important Disclosure: The owners of TheStreetSweeper hold a short position in OMNT and stand to profit on any future declines in the stock price.

* Editor's Note: As a matter of policy, TheStreetSweeper prohibits members of its editorial team from taking financial positions in the companies that they cover. To contact Sonya Colberg, the author of this story, please send an email to streetsweepereditor@yahoo.com.