Value Investing Challenge Runner-Up: Short LifeLock (LOCK) ~ market folly

Wednesday, September 18, 2013

Value Investing Challenge Runner-Up: Short LifeLock (LOCK)

We're posting up notes from the 2013 Value Investing Congress in New York.  Next up is the runner-up in the Value Investing Challenge competition.  David Swartz of Pacific West Land pitched a short: Life Lock (LOCK).


David Swartz's Value Investing Congress Presentation

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Short Life Lock (LOCK)

Claims to protect against identity theft.  He says they are misrepresenting their ability to protect against identity theft.  Weak product, not useful, basic product, 73% of members, doesn't even do credit report checks.  $10/month basic service has no credit monitor.
 
One of the founders had his identity stolen several times.  Own father accused him of using his AMEX to run up $150k in charges.  Name does not even appear in Life Lock’s prospectus.  Bankruptcies, lawsuits, failed businesses, etc.
 
The very origin of the company is a fiction.  CEO: Todd Davis, co-founder.  Put his own SSN in ads, his identity has been used in 13 separate incidents.  He's been selling stock every month. 

LOCK just bought ID Analytics, paid $186M in cash, for 7x revenue.  Business is unprofitable. 
LOCK has $1.3B market cap, 22x BV, 38x P/E forward eps.  Spending $170M on sales and marketing.  Has a public comp, INTX.  Its TEV/sub is only $39 vs. LOCK of $393. 
Price target: $5.


Be sure to check out the other presentations from the New York VIC here.


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