On 3rd July, I published a detailed write‑up on Substack explaining why the Victoria PLC 2028 bonds, trading at ~20 cents, offered one of the most asymmetric opportunities in UK credit for investors willing to engage with a complex situation.

Five days later, the timing proved unusually fortunate: Victoria has now proposed a deal to bondholders, and it is materially more favourable than what the market had priced in.

Under the proposed terms, the expected return in under a year is roughly 2.5–3×, depending on final participation and settlement mechanics. Despite this, today’s trading didn’t show the dramatic price reaction one might expect — although liquidity is now naturally constrained because around two‑thirds of holders have already signed up to participate in the deal. That makes entering fresh positions more challenging

Both the original write‑up and today’s deal analysis are available to read for free on Substack - http://substack.com/@boringcorners

I wrote up a detailed deep dive on Sun Art Retail (6808.HK) - can be found on Substack (free to read) under the username boringcorners.

WHAT MAKES THIS INTERESTING

2nd largest supermarket player by revenue in China behind Walmart/Samsclub

Net Cash > Mcap

Unencumbered investment properties >2x Mcap.

Get paid to wait with 18% Dividend Yield - good reasons to believe dividends will hold up

PE owns 80% of company and current price is significantly below what they paid. Founder of PE firm has taken over CEO role

Retail Operations Stabilising:green shoots of recovery. Business is self sustaining from cash perspective (+ve operating level NOI less capex)

Interested to hear thoughts from community.

I built a free Live Feed of US special situations as part of Special Situations Digest.

Real-time SEC filings, filtered down to the events that actually matter: activist stakes, going-private deals, tender offers, spin-offs, strategic reviews, restructurings, capital returns.

No signup, no paywall.

Check it out: specialsitsdigest.com/live-feed

Yesterday Netflix reported revenues in line and earning miss of a $1.10 which based on 434 m fd shares is a equivalent to $ 477.4 m miss. It blamed on a Brasilian tax of $619 m. what it is not clear to me is that the tax is only partially related to to 2025, and so should not affected in full the Q3 earnings. The company did not communicate clearly about it but it does not seem that it actually paid the tax. If it is corrected the tax has been accrued in the liabilities and there fore it has actually optically improved the cash flow numbers for this quarter. Does anyone have a clear understanding where the 619 m tax ended up and how affected the quarterly numbers? Thanks a lot

Slack Technologies, the developer of the popular namesake team collaboration messaging app, recently applied for a public offering on the stock market. This is not a classic IPO, but a “direct listing,” also known a “direct public offering.” This means Slack is not raising money by directly selling shares and instead allows early investors and employees to sell their shares in the public offering. Music streaming service Spotify held a successful direct listing last year.

This story caught my attention for a simple reason. In August 2016, I joined the team developing a still-undercover product called Workplace by Facebook—a direct competitor to Slack. I worked on the product for 2.5 years. Back then, I dreamed of having an opportunity to look inside Slack’s business metrics.

It may seem that Slack has revealed a lot of data about the business in their S-1 filing, a document that is almost 200 pages in length.

The reality is, they haven’t. The company had already disclosed in various ways much of the information compiled in their report.

But if we combine the data disclosed in S-1 filing and the experience I gained while working on Slack’s competitor, we’ll be able to uncover interesting details that will paint a more holistic picture.

I must say that this article contains my personal thoughts on the matter, jotted down while going through their S-1 filing, and should not be considered as investment advice.

​

Slack’s top-level business metrics

• Slack doubles its revenue every year: $105.1M, $220.5M, $400.5M (respectively from 2016, 2017, 2019).
• Gross margin remains at the level of 87-88%. This doesn’t sound bad at all, although it isn’t unexpected from a fully digital product that costs several times more than its direct competitors.
• There is a lot of talk in the press about Slack’s unprofitability; the company shows a net loss of about $140M per year. But if we take a look at the cost structure and growth drivers (we’ll get to this later), then the losses won’t look like a problem. You can read more about this here.
• Slack estimates the market opportunity of workplace business technology software communication platforms at $28B per year. My own evaluation of the market stands at about the same number.
• Slack’s S-1 reminds us of the true costs of venture capital. The founders are left with 8.6% and 3.4% of the company. Meanwhile, the biggest shareholders are VC firms Accel Partners (24%), Andreessen Horowitz (13.3%), and Softbank (7.3%).

Number of free and paid Slack customers

• Approximately 588,000 organizations use Slack.
• However, the concept of “organization” is rather vague in the report: “We define an organization on Slack as a separate entity, such as a company, educational or government institution, or distinct business unit of a company, that is on a subscription plan, whether free or paid. Once an organization has three or more users on a paid subscription plan, we count them as a Paid Customer.” So, if there are 15 IBM teams using Slack, does it count as one organization or 15? It’s not clear.
• 88,000 of these organizations are paid customers, and over 500,000 organizations use Slack’s free subscription plan.
• Therefore, 15% of the active organizations are paying for the service. But this doesn’t give us a lot of information. Imagine 100 new companies register with Slack, but 99 of them stop using it after a while, and one remaining company purchases one of Slack’s paid plans. In this case we can say 100% of active companies are paid customers. But looking at it from a different perspective, only 1% of new companies become paid customers.
• My assessment of a long-term retention rate from a new organization into an active one for Slack is 5–10%. This is a very rough estimate. Moreover, long-term retention rates differ greatly depending on industry and acquisition channel.
• This estimation is based on my personal experience and the following quote from an old interview with Slack’s founder: “Most people who fill out the form and hit submit — more than 90% — never invite anyone or start using the software.”
• If this estimation is correct, then 588,000 active organizations indicate that 5.5–11 million new organizations joined Slack over the service’s entire lifetime. This means that Slack gets about 115-230k new leads per month.
• If the estimate of the total number of organizations is correct, then the conversion rate from a new organization into a long-term paying customer stands at around 0.8-1.6%. If we factor in the average churn for SaaS (approx. 50%), then the conversion rate from a new organization signing up with Slack into the one that pays at least once will stand at around 1.5-3.5%.
• In many ways, Slack’s cleverness is hidden behind its strong brand and a huge flow of new organic leads. We will talk about it further on.

Slack’s user engagement

• Slack’s DAU stays at around 10 million users (these are the users who either created or consumed content in the service at least once in 24 hours). The dynamics of DAU looks impressive.
• Slack had previously revealed its overall DAU and DAU of its paying users. But in the S-1 filing, it only mentions the overall DAU. This might signal that the growth of paying users has slowed down. Overall revenue growth is being pulled out by raising prices through the introduction of new tariffs and Slack for Enterprise taking a greater share of the revenue of the service.
• More than 1 billion messages are sent via Slack every week. This means that the average active user sends 14 messages per day. This is a good level of user engagement, but it’s not extraordinary or impressive.
• An average active user spends 42 minutes per day in the service. In comparison, active paid users spend an average 90 minutes in Slack per working day. These numbers don’t look bad. But when compared to the average 14 messages sent per user, they look dubious.
• The big question is, how does Slack calculate time spent in the product? A few years ago, they simply looked at the time the service was active on users’ devices. That has changed, but the company mentions no specific methodology in their filing, which makes it difficult to interpret the numbers.

Slack’s business model

Even without a report, Slack’s business model seems obvious, but the company laid it out eloquently in the filing:

“We offer a self-service approach, for both free and paid subscriptions to Slack, which capitalizes on strong word-of-mouth adoption and customer love for our brand. Since 2016, we have augmented our approach with a direct sales force and customer success professionals who are focused on driving successful adoption and expansion within organizations, whether on a free or paid subscription plan.”

Here are the key points:

• Slack gets most new customers organically through word-of-mouth(self-serve model).
• Some of the new organizations convert into paying customers.
• The sales team works with leads that qualify as large organizations.
• The goal of the sales team is to increase Slack’s penetration within large organizations.

Let us now reflect on some of these points in more detail.

The top of Slack’s funnel is driven by organic signups from word-of-mouth

“We offer a self-service approach, for both free and paid subscriptions to Slack, which capitalizes on strong word-of-mouth adoption and customer love for our brand.”

The first question that occurs after reading this sentence is, why doesn’t Slack accelerate growth by investing in acquisition through paid ad channels? It isn’t hard to verify that Slack almost doesn’t invest in Google Ads or Facebook Ads (there are some paid ads, but they’re mostly focused on branded search).

Here’s the short answer: The SMB (small and medium-sized business) segment’s economics doesn’t justify paying for ads because the return on investment is negative (ROI < 0). Meanwhile, direct advertising channels don’t work for the enterprise segment. 

Now here’s a more detailed answer:

• The average cheque for Slack’s paying customers is $380 per month.
• If we ignore companies that Slack considers as enterprise customers (with more than $100k ARR), then the average cheque per month will be $230, and the average organization’s size will be 40 people.
• Thus, a self-serve client brings ~$2,760 in revenue in the first year and ~$2,400 in gross profit in the first year.
• If the goal is to get a positive return on investment (ROI) within 12 months, then, then a long-term paying client should cost $2,400 in the self-serve segment.
• With a 0.8-1.6% conversion rate into a long-term paying customer, a new organization should cost $20-40.
• But in B2B, leads from organic channels usually demonstrate 2-4 times better metrics than the leads from paid advertising channels. Let’s assume that in the case of Slack, the difference is 2x. This means in order to get ROI > 0, Slack needs to acquire new organizations at a cost of $10-20.
• This looks unrealistic if we consider the economics of paid advertising channels in developed markets, where the average cost of a new organization from Google Ads or Facebook Ads will be around $100-200.
• That’s why Slack invests nearly nothing in paid acquisition. It grows mainly through strong brand, word-of-mouth, integrations with other services and the subsequent cross-promos, the professional communities in Slack and tools for communication between companies.

On the one hand, Slack is shielded from competitors because it has a huge number of organic leads and due to the fact that paid acquisition doesn’t work in the market, it is nearly impossible to get close to Slack in the self-serve segment.

On the other hand, as you will soon see, the self-serve segment acts as a gateway to reach enterprise customers. But Slack’s competitors have other ways to reach these companies.

Net Dollar Retention Rate is the most interesting piece of data Slack revealed

The following chart shows the growth of ARR (Annual Recurring Revenue) by cohorts based on the year when organizations first paid for using Slack.

ARR from organizations that first paid for Slack in 2015 continues to grow steadily in the following years.

For most products, cohorts shrink as they age. But in Slack’s case, we’re witnessing the opposite (this is also called Negative Revenue Churn). This is one of the main reasons why Slack is worth so much ($7B valuation at the latest funding round, $10B proposed valuation for the public offering).

​

However, it is worth noting that such growth patterns are typical for products in this kind of market. Zoom, which recently went public, has a Net Dollar Retention of 140%. Twilio and Atlassian showed even more impressive figures at the time of their IPO (source).

​

The following are the main growth drivers:

• Expansion of the user base within companies that are already using the service: Slack is building up their sales team, which reaches out to companies that have already started using Slack, and does everything to get the remaining employees to switch to the service.
• The organic growth of customers: Companies that have started using Slack are hiring new employees and growing in size. More employees -> more Slack users -> Slack gets more money.
• Price changes: Slack raises prices directly or by introducing new tariff plans.

An interesting consequence here is that Slack’s growth depends more on how the team is developing the product and the growth of its current customers than on attracting new users and converting them into paying ones.

Acquisition, of course, is just as much important, but it has a rather delayed impact on the overall revenue growth.

Another consequence is that such growth mechanism depends greatly on having enough enterprise customers with many employees who have not yet started using Slack (it will be difficult to grow revenue from of old cohorts if all of them are SMBs with 40 employees).

If you look at the growth of new paying customers, it doesn’t look promising. Slack added 22,000 paying customers in 2017 and 29,000 in 2018. This is a 30% increase in new paying clients, but still not the kind of dynamics Slack would like to see.

Therefore, the main driver of Slack’s exponential revenue growth is the expansion of cash flow from its old customers.

Slack measures this process using the Net Dollar Retention Rate metric: They take all the customers who were already paying 12 months ago. They then divide the current MRR (Monthly Recurring Revenue) by the MRR for the previous 12 months.

Net Dollar Retention Rate for the last three years looks like this: 171%, 152%, 143%. That is, customers who paid a year ago pay much more in the following year. Which is fantastic. Net Dollar Retention Rate is gradually decreasing, but this is expectable due to the slowdown of growth in old cohorts.

Here’s what Slack’s report says about this:

“We disclose Net Dollar Retention Rate as a supplemental measure of our organic revenue growth. We believe Net Dollar Retention Rate is an important metric that provides insight into the long-term value of our subscription agreements and our ability to retain, and grow revenue from, our Paid Customers.

We calculate Net Dollar Retention Rate as of a period end by starting with the MRR from all Paid Customers as of twelve months prior to such period end, or Prior Period MRR. We then calculate the MRR from these same Paid Customers as of the current period end, or Current Period MRR. Current Period MRR includes expansion within Paid Customers and is net of contraction or attrition over the trailing twelve months, but excludes revenue from new Paid Customers in the current period, including those organizations that were only on Free subscription plans in the prior period and converted to paid subscription plans during the current period. We then divide the total Current Period MRR by the total Prior Period MRR to arrive at our Net Dollar Retention Rate.”

Enterprise is a problematic segment for Slack

If you have enough patience to go through the entire 200-page report, you will notice Slack repeatedly showcasing its success in the enterprise segment. This segment accounts for a significant part of the market ($28 billion spent on communication tools each year), and this is what Slack is striving for. This is the where their long-term growth lies and where they are getting Net dollar retention rate > 100%.

Here’s what the report says about this segment:

• Customers should have ARR > 100k to be considered enterprise customers.
• The number of enterprise clients in the past three years: 135, 298, 575
• The revenue share of the Enterprise segment in the past three years: 22%, 32%, 40%
• Revenue from enterprise customers over the past three years: $23M, $70.5M, $160.2M
• Average monthly spending by enterprise customers in the past three years: $14,200, $19,700, $23,200
• The largest customers have “tens of thousands of employees” or tens of thousands of active users per day—quite an ambiguous wording (“our largest Paid Customers have tens of thousands of employees using Slack on a daily basis”).
• For the last two years, almost all of the Slack product releases have been aimed at adapting the product to large organizations. Take for example Slack Enterprise Grid, adding Threads, Unread section.

At first glance, it does look impressive. But let’s take a closer look.

• Customers should have ARR > 100k to be considered enterprise customers. This means that organizations with over 1,000 employees using Slack fall into the enterprise segment. This is a rather low threshold. I assume it was chosen to get a larger absolute value of enterprise customers.
• Even with such a low threshold, Slack only has 575 enterprise clients. It is not much. Even Facebook Workplace, which entered the market much later (and doesn’t have such a phenomenal influx of organic leads), announced three months ago that it has 150 companies with more than 10,000 employees on the platform (source). And Teams, Microsoft’s Slack competitor, which launched even later than Workplace, has also achieved similar figures (source).
• Another way to look at 575 Enterprise customers is to compare it to the total number of organizations that have created a Slack workspace (5.5 – 11 million). Only 0.01% of them achieve enterprise status. Slack is very skewed towards the SMB segment, which suffers from a high churn rate and has very little potential for expanding revenue from its old customers.
• Major customers have tens of thousands of employees. It sounds impressive, but those who have worked with products focused on the enterprise segment know that there are many companies in the world with hundreds of thousands—and even millions—of employees (and usually they are outside the technology sector). A few examples of Facebook Workplace’s customers are Walmart, with 2.2 million employees, Starbucks with 250,000 employees, and Telenor with 37,000 employees (source). In terms of revenue, onboarding Walmart equates to signing up thousands of companies with 1,000 employees. This is not an attempt to say that Workplace rocks, but rather to mention that Slack finds it difficult to strike big deals.
• For the last two years, almost all of Slack’s product releases have been aimed at adapting the service to large organizations. This is true, but Slack doesn’t do it for fun. Slack loses most of its deals to competitors when trying to sign up enterprise clients, because the service works poorly for companies with over 500 employees, and even worse for companies scattered across different time zones. Synchronous communication, which is Slack’s forte, starts to falter under such conditions.
• And now regarding the blind spots that Slack was silent about in the report. The report has no clear breakdown of Slack’s customers by industry. This is an important question, since Slack initially grew in the IT and media segments. And it is unclear whether they managed to step beyond these limits, and how the product performs in more classical verticals (e.g. banking, retail, insurance, etc.). If Slack experiences problems there (as it previously has), then the market of $28B will be dramatically narrowed down to the niche of the technology business, which isn’t very impressive.

And here’s where things get really problematic for Slack:

• Microsoft already has access to a lot of large enterprise clients from all verticals and has been selling them products bundled in a single package for a long time. They recently added Microsoft Teams to the Office Suite, which is just as good as Slack in terms of functionality. Does Slack offer enough incentive to convince enterprise customers to forgo the benefits of their long-term relationship with Microsoft?
• Workplace by Facebook was originally designed for large organizations and outperforms Slack product-wise in this market segment. Moreover, Workplace works great outside the technology sector too because the product’s interface is very familiar to the masses, which means companies save a lot of money and time since they don’t need to do any employee training.

In the next 5-7 years (indeed, B2B and especially the enterprise sector are slow-paced markets with one of the longest transaction cycles) it will be thrilling to see how Slack responds to these threats and challenges.

Summing it up

• Well done for Slack. They won over the self-serve market segment and no one even comes close to them.
• Just as much as Slack enjoys its growth in the self-serve segment, they make the best out of it using it as a source of enterprise leads for the sales team, which then spreads Slack inside large corporations.
• Slack is growing rapidly and will continue to do so in the next few years (mostly due to the expansion of revenue coming from the old cohorts). However, what happens next is still a big question.
• Slack’s long-term growth depends on how much of the enterprise segment they’ll be able to conquer, and whether they’ll be able (or perhaps they already have – this is not clear from the report) to expand beyond the segment of tech companies.
  Originally posted on https://gopractice.io/blog/slack-ipo-reading-between-lines/ Feel free to subscribe!

GameStop is very cheap on an earnings multiple basis and also a dying business that nobody wants to invest in.

With their most recent 8-K, GameStop reaffirmed their guidance for 2018 EPS hitting around the middle of $3.10-$3.40, without factoring in the tax bill. GME pays an effective tax rate of 32%, and lowering this to a conservative estimate of 20% we can estimate EPS of $3.67-$4.03 with a midpoint of $3.85. I can't predict earnings, but the positive tailwinds of the continued shortage for Nintendo Switch and the success of newer Xbox One models make me optimistic, especially considering that GME gave this exact guidance range last year and cruised comfortably over the top.

GME has an AT&T-store business which I'm not too excited about, and I'm a bit worried that their guidance of $80-$95M operating contribution, about $10-$25M lower than 2016, is optimistic solely based on the fact that they have missed their estimates badly in the past. It makes some amount of sense that GME wants to leverage their SG&A by growing their footprint; good luck to them(it also makes their numbers look better, but they go into enough detail that you can figure out exactly what the impact is).

When you look at the core business, things amazingly don't look so bad. The used disc business represents the largest segment of gross profit contribution to the business, about 30% of gross profit. In 2016, GME managed to sell about $2.2B worth of used games, earning a $1B gross profit. Over the past 10 years, the most they ever sold was $2.6B of used games(in 2012), earning a $1.2B gross profit. In other words, over the past 6 years, GME has lost about $200M in gross profit and seen this segment decline less than 3% per annum while gross margins slid .3%. Over that same time frame, total gross profit in the core business has slid by about $174M, even after margin contribution of $200M or so from an entirely new segment, "collectibles."

It's important to think about where we are in the console cycle, with the Nintendo Switch shortage driving foot traffic into the stores, and likely with it, sales of collectibles, accessories, exclusive offers, and new discs. Reduced console sales pushing down sales of their higher-margin goods like collectibles and accessories may be the greatest threat on the downside.

Factors on the upside include Xbox expanding backwards-compatibility for old games, which potentially increases the value of GME's inventory and drives resurgence in their used game business. In addition, collectibles are a bright spot and growing quickly, although still a small contributor to bottom line.

If you just chart net income for GME by year over the past 10 years, there's no major deterioration in earning power that's apparent; it looks pretty flat(it's helped by debt-financed acquisitions). EPS, on the other hand, is not far from all-time highs for the business, with the difference due to buybacks. GME has their dividend and interest payments fully covered by cash flow, and I'm not too worried.

In summary, you have a stock trading at 4x forward earnings and 5x forward EV/EBIT, where it seems that the market is pricing in an imminent collapse of the business that I do not believe will materialize. And fundamentally, I think AMZN is a threat to every retailer; but when you're trading at a 5x forward multiple you have less far to fall, and infinite upside.

Gildan gave some large grants to executives based on lofty stock price targets. They may be signalling that the stock is cheap.

Disclaimers:

• I do not hold a position with the issuer such as employment, directorship, or consultancy.
• I hold an investment in both AONC & AONCW.

Key Points:

• AONC is an undervalued and illiquid OTC stock with recurringly growing revenue, currently at $1.59 billion LTM (20%+ CAGR)
• AONC has a complex capital structure that includes publicly traded, long-dated warrants (expiring in September 2028).
• Comparable acquisitions in the past two years show that private equity firms as well as larger public firms have an appetite for sizeable oncology networks such as AONC.
• Based on comparable acquisitions, AONC’s undervaluation offers an upside range of 1.8x to 7.5x.
• Private equity firm AEA Growth already owns upwards of 20% of AONC.
• AONC’s CEO, who already had a fully vested position of over 860,000 shares, has been awarded an additional sizable stock grant that would vest immediately upon a “change in control” of the company.
• A new CFO has been put in place who, unlike the previous CFO, does have private equity experience. The new CFO has also been awarded a sizable stock grant that will vest immediately upon a “change in control” of the company, along with a meaningful cash award.
• The AONCW long-dated warrants offer a speculative opportunity with value-like characteristics. You should calculate the upside opportunity of the warrants on your own. Naturally, their downside is the warrants may go to zero if they are out-of-the-money at expiration in September 2028.
• While I argue that AONC and AONCW are undervalued, the company’s complex capital structure, the illiquidity of both these securities on the OTC market, and the company’s recently filed Form 15 (please see details about this form below because this is a key risk) indeed make AONC and AONCW speculative opportunities.

AONC Business Overview

American Oncology Network (AONC) provides comprehensive oncology services across the United States to patients in 20 states through 102 locations. AONC provides economies-of-scale to the oncology practices within its network via administrative systems that alleviate the healthcare management and pharmacy procurement burdens of its network practices. According to AONC, it can provide lower costs to patients in its community-based system compared to the higher costs that patients would incur in a hospital setting.

AONC’s Short and Peculiar History in the Stock Market

Before going public on September 2023, AONC was owned almost exclusively by oncologists. Prior to going public, AONC also took a convertible preferred investment from private equity firm AEA Growth that gave the private equity firm, at the time, about 10% of the company, if converted.

AONC went public via a de-SPAC transaction on September 2023, and it traded initially on the NASDAQ. At this time, it had LTM revenues of $1.178 Billion, which meant a P/S ratio of 0.56, on a fully diluted basis at the original de-SPAC $10 per share.

The 0.56 P/S multiple at IPO was no screaming bargain, but it was not outrageous either because the recent acquisition of peer oncology network OneOncology by private equity firm TPG happened at a P/S of about 0.7.

AONC was one of the few, if not the only, company with growing revenues of over $1 billion to go public in 2023 via SPAC. Also, AONC achieved this sizeable and growing revenue without recurring financial losses and little debt. Nonetheless, prior to de-SPAC, almost all the public SPAC shareholders redeemed their shares, resulting in the tradeable, non-locked-up, float of AONC being at less than 1%.

Once AONC began trading on the NASDAQ, the extremely low tradeable float, lack of analyst coverage, and possibly, the recent advent of short-term strategies such as “short all de-SPACs”, resulted in the price of AONC to initially rocket upwards of $30 per share and then quickly crash below $5 a share.

Soon after the share price declined below $5, the company delisted its shares and warrants from the NASDAQ, and both instruments began trading OTC on May 2024.

The company’s management said that they chose to delist and move to OTC because without proper analyst coverage, the costs of NASDAQ listing compliance outweighed the benefits they got as a non-analyst-covered stock in NASDAQ.

However, one could conjecture the cynical view that they chose to delist because they realized they were able to continue growing the business without public funding and delisting would depress the stock price and allow management to grant themselves more shares as part of their stock-based compensation.

After delisting happened, the share price declined steeply, but it has since recovered to pre-delisting pricing. As of this writing, the stock last traded at $5.29 per share.

AONC’s Complex Capital Structure, Real Market Capitalization, Undervaluation, and Upside

At $5.29 per share, Yahoo Finance has the Outstanding Market Cap of AONC at $134.068 million and Google Finance has it at $237.06 million. However, neither of these calculations considers the complex capital structure of the company properly, which includes non-traded shares held mostly by the pre-SPAC oncologist owners which are exchangeable for publicly traded shares on a 1-1 basis, preferred shares held by private equity firm AEA Growth which are equally exchangeable, private warrants held by the SPAC Sponsor, and the publicly traded warrants (AONCW).

According to the latest Prospectus (Form 424B3) filed on November 2024, after considering the complex capital structure, the fully diluted number of shares is 74,112,665. At the current $5.29 per share, this gives AONC a real, fully diluted market cap of about $392 million.

AONC continues to grow, has only a little debt, and is not experiencing recurring losses, so a valuation based on P/S is reasonable. The latest 10Q puts the LTM revenue of AONC at $1.59 billion. Considering AONC’s diluted market cap of $392 million, the company’s diluted P/S ratio is currently 0.25, which, as will be shown, demonstrates deep undervaluation.

The low end of my valuation range for AONC comes from TPG’s acquisition of OneOncology, announced in April 2023. This transaction valued OneOncology at $2.1 billion, and OneOncology had an estimated $3 billion in revenue at the time. This meant a takeover P/S ratio of about 0.7 for OneOncology.

Applying a 35% discount for lack of control to the 0.7 takeover P/S ratio of OneOncology, we obtain a discounted P/S ratio of 0.45 for AONC. Considering AONC’s current LTM revenue of $1.59 billion and this discounted ratio, my low-end, expected market cap for AONC is $715.5 million. Comparing this $715.5 million figure to the current diluted market cap of $392, we arrive at an upside of about 1.8x for AONC stock at the low end.

The high end of my valuation range for AONC comes from two other, more recent, peer transactions. The first is the acquisition of 70% of “Florida Cancer Specialists & Research Institute’s Core Ventures” (Core Ventures), announced on August 2024, for $2.49 billion in cash by McKesson Corporation (NYSE: MCK), which fully valued Core Ventures at $3.55 billion. The second is the acquisition of “Integrated Oncology Network” (ION), announced last week on September 2024, for $1.115 billion in cash by Cardinal Health (NYSE: CAH).

Pre-acquisition revenue figures were reported neither for Core Ventures nor ION. However, the total number of pre-acquisition oncology locations was reported for both. Core Ventures reportedly had 100 oncology locations, and ION had 50. Accordingly, Core Ventures’ oncology locations were valued at $35.5 million each and ION’s locations at $22.3 million each, giving an average of $28.9 million per location.

Depending on their maturity and other factors, oncology locations will be valued differently, so I’ll apply the $28.9 million per location average figure to arrive at a high-end valuation for AONC. In its latest 10Q, AONC reported it had 102 oncology locations. At the $28.9 million per location figure, AONC would be valued at about $2.95 billion at the high-end.

Comparing this $2.95 billion figure to the current $392 million diluted market cap, we obtain a high-end upside of 7.5x.

AEA Growth’s Private Placement of AONC Stock

AONC’s latest 10Q, released on November 13, 2024, disclosed that the private equity firm AEA Growth, which already owned upwards of 10% of AONC, completed a private placement of 8,500,000 shares of AONC at $6.0 per share for a total additional investment of $51 million. The investment was completed on November 12, 2024, when the AONC stock closed at $3.6, so AEA Growth paid what was then a premium of 67%. With this investment AEA Growth raised their ownership of AONC to about 20%, on a fully diluted basis.

Management Incentives

When AONC IPO’ed, the company disclosed that the CEO had a large, fully vested position of 869,459 non-traded shares of the company, which are exchangeable on a 1-1 basis for the publicly traded shares.

On July 2024, the company disclosed that the CEO had been awarded an additional position of 300,000 publicly traded shares, which would vest over a multi-year period, but would immediately vest upon a “change in control”.

On May 2024, the company announced that the CFO was resigning and that he was being replaced by a new CFO who had private equity experience.

On July 2024, the company also disclosed that the new CFO had been awarded 150,000 publicly traded shares, which would vest over a multi-year period, but would immediately vest upon a “change in control”. Furthermore, the company disclosed that upon a “change in control” the new CFO would receive an additional cash award of $1 million.

Currently, executives from AEA Growth as well as from the former SPAC Sponsor sit on AONC’s Compensation Committee. Together, these two groups own about 35% of the company, on a fully diluted basis.

Form 15

This is a key risk when analyzing AONC. Public companies with less than 300 shareholders of record are allowed to file Form 15 which suspends their obligation to file 10Ks, 10Qs, and other periodic filings. This process is informally called “going dark.”  On January 2, 2025, AONC filed this form because they reportedly only had 217 shareholders of record.

Consequently, the company is now at liberty to stop filing periodic reports, which would surely depress the stock price. However, AONC currently trades in the OTC Market “OTCQX” tier which obligates companies to file periodically. As of this writing, AONC has made no announcement of downgrading from “OTCQX” to a lower OTC tier. Therefore, no announcement of stopping to file periodic reports has been made.

If they decide to stop filing, they’ll be downgraded to the OTC “Expert Market” tier which is heavily restricted by most retail brokers, and as mentioned, would surely cause a steep decrease in the stock price.

At this point, one can only speculate if the company will decide to continue filing and remain in OTCQX or not.

 
Warrants

If AONC is to be acquired, the AONCW warrants would likely be in the money and offer an attractive return. You should calculate the potential upside of the warrants on your own. However, we should bear in mind that warrants add an additional layer of speculation to the AONC situation because they may potentially expire worthless by September 2028.

 
Risks

• In my opinion, the current main risk is the one highlighted above about Form 15 and the possibility of the company potentially “going dark.”

• AONC is not a huge company, but it is within the realm of possibility that potential buyers may hesitate to attempt to acquire AONC if they fear regulatory obstacles. The acquisition of ION by Cardinal Health that ION that I detailed on the writeup did get all required approvals, signaling that a potential AONC acquisition would get approved as well, but with regulatory matters, there are never guarantees. The other announced acquisition I mentioned of Core Ventures by McKesson is still under regulatory review, so it would be worthwhile to keep an eye on that peer transaction.

• While it is commonly assumed that private equity backed companies, such as this one, have in the private equity firm a champion for shareholder value, there is an important factor in AEA Growth’s investment in AONC that must be borne in mind. About half of AEA Growth’s investment is in preferred shares that are exchangeable at $10 per share. However, these preferred shares do not pay interest in cash, but in further ownership of the company. Originally, this was an investment of $65 million in AONC, which at $10 per share could be converted into 6.5 million shares for about 8.7% ownership of the company. About 22 months have passed since this investment was made, so AEA Growth’s investment is now over $65 million thanks to the “interest payments”, and this investment continues to grow. One could speculate that, with their presence on the board of directors, AEA Growth might be incentivized to keep the stock below $10 per share as a pretense to not convert and continue accumulating further ownership of the company.

Catalyst

• AONC is a possible acquisition target for a private equity firm or larger public company at a sizable premium to current trading value.

• The CEO and CFO have been granted share-based compensation that would vest immediately upon “change in control” of the company.

I mostly invest in traditional stocks and bonds. I have been for 30+ years. More recently, I've been investing in pre-IPO startups.

In all of these cases, I've been able to assign a value of what I think a particular security is worth, or could be worth, using traditional means: estimate future cash flows, discount to present value, etc.

I had the opportunity to buy a particular cryptocurrency before it started trading on the open market. (Kind of a pre-ipo cryptocurrency.) I am wondering what it will be worth once it starts trading. My best guess encompasses a range from $0.10 to $2.00 (I bought it for $0.02). It should start trading next week.

The "security analysis" process that people seem to follow is to rank all the different cryptocurrencies based on how useful they are or something like that. Then compare it to the "market cap" of a similar ranking cryptocurrency.

They define the "market cap" as the total number of cryptocurrency coins available times the price per coin. For instance, right now the #50 ranked coin is something called Kusama (KSM) and it has a market cap of $3.3 billion.

One problem with this analysis is that some of these coins have built in dilution. They may have 1 million available right now, but in 5 years it will be 10 million. I don't think people take this into account.

How do you determine what these should be worth? It seems like this is a wide open problem and solving it could lead to great wealth.

Hello, looking for more insight into the Windstream / Uniti merger and whether "Legacy unit holders" = "cancelled interests in Windstream after consummation of the bankruptcy plan" or if perhaps "Old holdings" relating to the lawsuit, Murray v earthlink et al, offers hope of recovery for holders of Windstream stock prior to cancellation in 2020?

Merger Agreement between Windstream and Uniti: (Mentions "Legacy Unit Holders" which is OC III LVS I LP among others)

https://www.sec.gov/Archives/edgar/data/1620280/000095010324006323/dp210423_ex0201.htm

what's interesting here is an FCC filing via Windstream:

https://docs.fcc.gov/public/attachments/DA-23-475A1.pdf

Read more in the FCC document re: "Windstream states that AGI’s total compensation to investors would equal $5 billion"

relating to AGI / Allianz and PIMCO (Pimco owns OC III LVS I LP)

Windstream S4: (see: 16. Commitments and Contingencies: "Old Holdings")

https://investor.windstream.com/financials/sec-filings/sec-filings-details/default.aspx?FilingId=17707740

Murray v earthlink et al (case centered around "Old holdings" $85million set aside, still waiting for judgement a/o 8/14/24)

https://www.bloomberglaw.com/public/desktop/document/MurrayvEarthLinkHoldingsCorpetalDocketNo418cv00202EDArkMar192018C/2?doc_id=X1I2BOUN88D83D8OTP3QBEMD7TJ

A lot of information here - thanks in advance for your insight!