Onfolio (ONFO) seeks $15 million IPO

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A quick onfolio

Onfolio Holdings Inc. (ONFO) has filed to raise $15 million in an initial public offering of its common stock and warrants, according to an S-1/A registration statement.

The company acquires and operates websites in various industries.

ONFO hardly recommends it as its revenue is shrinking from a tiny base, other financial metrics are deteriorating and it operates in a highly competitive environment with low barriers to entry.

While risk-tolerant day traders might have an interest in playing the IPO as an investment opportunity, I think ONFO is on hold.

Onfolio overview

Based in Wilmington, DE, Onfolio was formed to acquire and operate websites in industries that management believes offer long-term growth prospects.

Management is led by Chairman and Chief Executive Officer Dominic Wells, who has been with the company since May 2019 and was previously the founder of Digital Wells Limited, dba Human Proof Designs, an internet marketing agency.

The company’s main lines of business include:

• pets

• Arts and crafts

• Molecular Hydrogen Supplements

• B2B SEO Services

• graphic design

• computers

• people search

Onfolio has booked a fair market value investment of $6.9 million as of March 31, 2022 from investors including Meraki Partners and individuals.

Onfolio – User Acquisition

The company seeks to acquire controlling interests in “small sites,” which it defines as sites that generate cash flows of up to $5 million per year.

Management believes that the acquisition market for these types of sites is fragmented, giving the company better pricing opportunities, which in turn translates into higher returns for shareholders.

Selling, general and administrative expenses as a percentage of total sales have changed as sales have declined, as shown in the following figures:

Sale, G&A	Expenses vs. Income
Period	percentage
Three months. Ends March 31, 2022	206.6%
2021	137.1%
2020	230.2%

(Source)

Sales, G&A efficiency multiple, defined as the amount of incremental new revenue dollars generated by each sales, G&A dollar spent, fell into negative territory over the most recent reporting period, as shown in the table below:

Sale, G&A	efficiency rate
Period	Several
Three months. Ends March 31, 2022	-0.2
2021	0.4

(Source)

Market & Competition by Onfolio

According to a 2020 market research report by Valuates Reports, the global digital content market was estimated at US$161 billion in 2020 and is projected to reach US$241 billion by 2027.

This equates to a projected CAGR of 5.9% from 2021 to 2027.

The main drivers behind this expected growth are the increase in the number of connected devices, faster connection speeds and growing demand for content from users who are spending more time on the Internet.

Also, the Asia-Pacific region is expected to experience high growth during this period, with China driving strong growth due to increasing device adoption and higher gaming app spending patterns.

Key contestants or other industry participants include:

• InterActive Corp

• FuturePLC

• WeCommerce Inventory

• emerging commerce

• Red ventures

• traverse

• DrinkHRW

• DrMercola

• Quicksilver Scientific

• AppSumo

• FontBundles

• CreativeMarket

Onfolio Financial Performance

The company’s recent financial results can be summarized as follows:

• Contracting top line revenue

• Reduced gross profit and variable gross margin

• Increasing operating losses

• Growing cash used in operations

The following are relevant financial results arising from the company’s registration statement:

total revenue
Period	total revenue	% variance vs. before
Three months. Ends March 31, 2022	$385,923	-25.0%
2021	$1,808,543	140.7%
2020	$751,290
gross profit (loss)
Period	gross profit (loss)	% variance vs. before
Three months. Ends March 31, 2022	$161,153	-43.5%
2021	$735,034	19.5%
2020	$615,116
gross margin
Period	gross margin
Three months. Ends March 31, 2022	41.76%
2021	40.64%
2020	81.87%
Operating Profit (Loss)
Period	Operating Profit (Loss)	operating margin
Three months. Ends March 31, 2022	$(756,930)	-196.1%
2021	$(1,952,311)	-107.9%
2020	$ (1,145,939)	-152.5%
net income (loss)
Period	net income (loss)	net margin
Three months. Ends March 31, 2022	$(791,886)	-205.2%
2021	$(2,006,973)	-520.0%
2020	$(1,147,344)	-297.3%
Cash flow from operations
Period	Cash flow from operations
Three months. Ends March 31, 2022	$(542,460)
2021	$(1,140,481)
2020	$ (32,445)
(Glossary of terms)

(Source)

As of March 31, 2022, Onfolio had $1.3 million in cash and $570,417 in total debt.

Free cash flow for the twelve months ended March 31, 2022 was negative ($1.67 million).

Onfolio IPO Details

Onfolio intends to raise $15 million in gross proceeds from an initial public offering of its common stock and warrants and is offering 2.85 million shares at a proposed mid-point price of $5.25 per unit.

Each unit consists of one share and two common share purchase warrants.

The warrants are immediately exercisable at the IPO price and will trade under the symbol “ONFOW”.

No existing shareholder has expressed an interest in buying shares at the IPO price.

Assuming a successful IPO, the Company’s enterprise value at IPO would be approximately $59.5 million, excluding the impact of underwriters’ over-allotment options.

The free float to outstanding share ratio (excluding over-allotments by underwriters) will be approximately 20.25%. A number below 10% is generally considered a “low float” stock, which can experience significant price volatility.

Management says it will use the net proceeds from the IPO as follows:

approximately $12 million for website, technology, or other asset acquisitions […]; and approximately $1.3 million for marketing, working capital and general corporate purposes.

(Source)

Management’s presentation of the company’s roadshow is not available.

Regarding pending lawsuits, management says the company is not currently involved in any material lawsuits.

The sole public bookrunner of the IPO is EF Hutton.

Valuation metrics for Onfolio

Below is a table of relevant cap and valuation numbers for the company:

Measure [TTM]	quantity
Market capitalization at IPO	$73,911,149
Enterprise value	$59,458,247
price / sale	44.00
EV / Revenue	35.39
EV / EBITDA	-23.43
earnings per share	-$0.18
operating margin	-151.07%
net margin	-156.51%
Ratio of float to shares outstanding	20.29%
Proposed IPO midpoint price per share	$5.25
Net Free Cash Flow	-$1,666,233
Free cash flow yield per share	-2.25%
Debt / EBITDA multiple	-0.01
sales growth rate	-24.99%
(Glossary of terms)

(Source)

Commentary on Onfolio’s IPO

ONFO seeks public capital market investment for acquisitions and general working capital.

The Company’s financials have resulted in lower revenue, gross profit and variable gross margin, higher operating losses and increased cash burn.

Free cash flow for the twelve months ended March 31, 2022 was negative ($1.67 million).

SG&A expenses as a percentage of total revenue has changed as revenue has decreased; The sales, G&A efficiency multiple slipped into negative territory as revenue declined.

The company currently plans not to pay dividends on its shares and anticipates using future profits to reinvest in the company.

The market opportunity for consumer digital content delivery is large but highly fragmented and can be difficult to monetize cost-effectively at scale.

EF Hutton is the sole underwriter and IPOs led by the firm over the past 12 months have generated an average negative return (39.5%) since its IPO. This is a lowest performance for any major underwriter over the period.

One risk to the company’s prospects is the uncertain cost of user acquisition, which may be subject to both SEO efforts and the cost of paid acquisition.

Valuation-wise, management is asking investors to pay an enterprise value/sales multiple of over 35x, even though it’s generating shrinking sales and other disappointing financial results from a small base.

ONFO can hardly recommend it as its revenues are shrinking and it operates in a highly competitive environment.

While risk-tolerant day traders might have an interest in playing the IPO as an investment opportunity, I think ONFO is on hold.

Estimated IPO Price Date: To be announced.