A company trying to make money with mansions full of TikTok influencers went public on the stock exchange thanks to an unusual deal. This is an old Chinese healthcare company, and if that sounds confusing, well, we can explain it.
Social media entrepreneurs have been rushing to find ways to make money with stars on popular platforms like TikTok. West of Hudson Group, for its part, operates a network of content houses where many top young influencers live.
Houses like these operate as management companies, taking a percentage of the income from the creators who live there. Influencers often don’t pay rent, but instead produce content for brands and promote products as in-kind rental.
Dozens of influencer houses have arrived in the Los Angeles area over the past year, and the companies that run them have sought sustainable business models. Going public, however, is a new strategy.
West of Hudson was acquired this week by Tongji Healthcare Group, a Las Vegas entity that was incorporated by a Chinese hospital in 2006 but had no assets at the end of 2019.
The deal was a reverse takeover, in which a private company (in this case West of Hudson) is acquired by an already public company (Tongji Healthcare) but ends up taking control. The deal was made on Wednesday.
There was more maneuvering behind the scenes. Prior to the reverse merger, Tongji itself was acquired by investors who control West of Hudson, a New Jersey real estate operator named Amir Ben-Yohanan and his business partners.
All of this is to say that the merged company, which applied to be rebranded as Clubhouse Media Group, is now listed on the Pink Sheets Market, where tiny public and often speculative companies trade. Tongjis stock closed at $ 2.30 on Friday, 38% below its August high.
Extremely low-priced stocks, known as penny stocks, are extremely volatile. While savvy investors may reject such a risky investment, inexperienced investors, many of whom are active on online trading platforms like Robinhood, have an appetite for themselves and the companies at the heart of social media trends.
Influencer content houses often revolve around drama. Many last only a few months before an internal conflict or a dispute between talent and management leads to their disintegration. (In July, The New York Times reported that several content houses, including those owned by West of Hudson, were shopping on reality shows, using fiction as a selling point. None have been sold.)
Clubhouse, the West of Hudsons Network’s main house of influence, was co-founded in March by Mr. Ben-Yohanan, Christian J. Young, and Daisy Keech, a social media influencer. Its first location, in Beverly Hills, developed into a network of influential mansions including Clubhouse Next, Clubhouse for boys, Clubhouse Malta and Not a content house.
However, it can be difficult to attract investors to the public markets.
In the first six months of the year, West of Hudson reported revenues of almost $ 96,000, but a loss of $ 983,000. Mr. Ben-Yohanan, the chief executive of the company which controls 62 percent of the shares, according to a recent securities filing, granted him a loan of just over $ 1 million. The company can earn him nearly $ 4 million more, according to the filing, which also indicates that Tongji may need to raise funds in the markets to finance its operations and grow.
In an interview, Mr. Young said the company was looking for options to raise capital in the debt and equity markets, but declined to give further details.
According to the Tongji file, Mr. Ben-Yohanan founded West of Hudson Properties, a New Jersey real estate company that owns or manages more than $ 300 million in multi-family properties. He is listed as a tenant on two of the Clubhouse’s main properties, according to the file, which adds: While Mr. Ben-Yohanan intends to assign these leases to the Company in the future, it is possible that Mr. Ben -Yohanan cannot assign these leases at short notice, or not at all.
A call to West of Hudson Properties seeking comments from Mr. Ben-Yohanan was not returned. In addition to being a Managing Director, he is on the list of Tongjis’ top financial and accounting officers.
Besides the financial aspects, companies associated with social media trends are proving to be attractive among new and young investors. Zach, a 12-year-old investor who created follow-up on YouTube and Twitter, is one of the many young people who have taken up trading in stocks, mainly by watching YouTube videos. There are a lot more young people on the stock market than people realize, he said.
He trades stocks under his parents’ names (they monitor his use) using a UK investment platform called Trading 212. He said he needs to look at the company’s finances before determining if he It was a wise investment, but that he could see other people his age interested.
For most kids who invest in the stock market, there is an interest in new kinds of social media trends and companies like TikTok who want to invest in things like that, Zach said. A business affiliated with top social media stars, he said, is something they would be 100% interested in.
Trading in penny stocks has jumped this year. After the Covid pandemic shut down sports leagues earlier this year, many frustrated sports bettors migrated to the stock markets. This change coincided with a widespread move initially started by the Robinhood trading app towards lower trading fees, which further encouraged speculation in low-priced stocks.
However, these stocks often have bleak business prospects and weak management teams. And with little trading activity or professional analysis, penny stock prices are volatile and driven by rumor and speculation in online message boards, regardless of the fundamental likelihood of the company making money. silver.
Until October, about 23% of stocks traded on U.S. stock markets were valued at less than $ 5, according to the New York Stock Exchange. During the same period in 2019, they accounted for around 14% of trade.
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