AGBA Group + Triller With A Punch From BKFC (NASDAQ:AGBA)

Manole Capital Management

Triller/AGBA/BKFC

September 2024

Introduction:

Triller is a platform that is primarily known in the music and entertainment industry, reaching the top spot in app stores across 79 countries. In 2020, Triller even surpassed its primary competitor, TikTok, in the US app store. As of today, Triller has 450 million user accounts and is preparing for a public listing.

Within the next few weeks, Triller will hopefully conduct a reverse merger (with a former SPAC listing) called AGBA. Over the next 14-pages, we will discuss the details of each business, our forward-looking outlook, a valuation for each and arrive at a forecasted price target for the combined entity. Based on our analysis, we believe the combined Triller + AGBA is worth $1.8 billion, or $4.80 per share, which would represent a +120% gain from today’s prices (and a near 50% discount to Triller’s Board of Directors independent fair market valuation appraisal.

Reverse Merger:

Triller had been trying to conduct an IPO for the last year, but was unable to get listed. Various reasons have been provided for this failure to list, but this reverse merger hypothetically gets them public more quickly and easily.

On November 14^th, 2022, AGBA (NASDAQ:AGBA) began trading as a Nasdaq-listed SPAC (special purpose acquisition company), through a British Virgin Islands incorporation. It merged with TAG Holdings in a business combination agreement to go public. AGBA is a one-stop financial supermarket, positioned to capture the attractive long-term demographics in Hong Kong and Mainland China. However, despite its market leadership, the shares garnered little attention and languished under $1.00 per share.

On April 18^th, 2024, the two companies announced their intention to do a reverse merger. As this price chart shows, the combination of Triller and AGBA triggered a massive rise in the underlying shares.

As the merger is structured as an all-stock transaction, there is no cash exchanged, and the ownership stakes are solely determined through stock allocation. All existing AGBA shares based in Hong Kong will convert into the new company’s shares to maintain an identical number of shares. Based on the price of AGBA pre-announcement of $0.40 per share, it will issue equity valued at $119 million. At the current price, the shares issued to purchase Triller is estimated to be valued at $665 million. Following this reverse merger, possibly slated in late August or early September, the companies will initially trade under the ticker AGBA, and potentially under the ticker ILLR. After the announcement with Triller, the combined stock reached a peak price at $4.15 per share on May 6^th, 2024, but has now settled in the $2.15 per share range. As we get closer to this transaction finalizing, we anticipate the shares will dramatically rise.

From our perspective, the most important aspect of getting Triller publicly traded will be its ability to raise a significant amount of capital. Triller’s CEO is Bobby Sarnevesht, and he stated (in a Los Angeles Times article) that AGBA “is the most efficient route for Triller to access public capital markets and secure liquidity needed for rapid growth.”

A $4 Billion Merger:

As this slide from AGBA’s latest investor presentation shows, the combined company is slated to have a market capitalization of $4 billion, as estimated by Triller’s Board of Directors independent valuation. Triller will own 80% of the combined company, implying a valuation of $3.2 billion, while AGBA will own 20% or a $800 million valuation. Once the two companies merge, from our reading of various financial disclosures, Triller will be a surviving entity, as a wholly owned subsidiary under AGBA Delaware.

As of today, the combined company has a stock price of $2.15 and approximately 372 million shares outstanding, implying a market capitalization of roughly $800 million. To calculate our total number of outstanding shares, we take 239 million common shares of Triller, add 74 million common shares of AGBA and add in the Triller RSUs of 58 million.

If one believes the independent valuation conducted on the combined business, this would mean that shareholders would be getting AGBA for $800 and Triller and BKFC for “free”. Clearly, there is a major disconnect between the intrinsic value of the businesses versus the public perception of value. Before we get too detailed about the valuation of each company, let’s discuss the underlying fundamentals and details of each business.

AI (Artificial Intelligence):

Triller is attempting to leverage AI capabilities across all of its platforms. In their SEC filings in 2023 (as they attempted to go public), Triller must have mentioned AI one hundred times. Maybe two hundred!

When Triller begins to market themselves and seek broader sell-side analyst coverage, we envision it will attempt to frame its business as driven by AI. With the market’s infatuation with AI right now, that’s not a terrible idea, right? Triller will use AI to better understand user engagement, optimize content distribution, and maximize its revenue streams. That’s certainly their plan, but we need to dive into the details of who Triller is. We won’t spend too much time on AI, but simply highlight that it is captured in Triller One, and its Amplify.ai and Julius businesses.

Demographics:

Triller’s target audience is the growing Gen-Z and Millennials demographic. Clearly, these two groups are frequent users of digital/social platforms and important creators of viral material. These customers are looking for short-form, creative, and interesting video content.

Triller stands out from its rivals for several specific reasons. First, its deep integration with music and musicians allows it to create and share content that syncs with musical tracks. This appeals to both aspiring and experienced musicians, as well as music lovers. Second, Triller’s celebrity endorsement deals greatly increase the company’s reputation and visibility, which further promotes user interaction and platform expansion. We believe Triller’s strength lies in two specific verticals: music and celebrity endorsements.

Triller sets itself apart from other social media applications based on its musical capabilities such as AI music videos, a large library from different record labels, and features that support artists. Music lovers have useful tools for artists’ promotion and monetizing as they receive powerful video editing tools. The engagement with artists and exclusivity paired together with a strong focus on music related content and interactive features are Triller’s key selling points for music lovers and producers alike.

Social Media:

The global social media industry is estimated to be worth over $250 billion in 2024, up nearly 15% annually. In fact, the entertainment industry is projecting its valuation to grow by another 13% per year to $413 billion by 2028.

Can Triller capture a share of the social media market? Can it leverage its strengths to take on market leader TikTok? Could US government intervention force ByteDance to sell its controlling stake in TikTok, benefitting Triller? Let’s try to address each one of these questions.

Who is Triller?

Triller has four main segments:

The Triller App is for short-form social videos, similar to TikTok Triller One is their SaaS (software-as-a-service) and AI solution Triller TV is a long form streaming sports and events platform BKFC (Bare Knuckle Fighting Championship) is a market leading combat sport league

Triller One:

Before we discuss the Triller App, we thought we would briefly highlight Triller One. This is their SaaS business and Triller’s primary AI capabilities. In this segment, Triller combines Amplify.ai and their Julius businesses. Amplify.ai was acquired in December 2021 and then Triller internally developed its Cliqz and CrossHype offerings. Julius was acquired in November 2022 and is a SaaS (software-as-a-service) solution used by marketers, brands and advertising agencies.

Amplify.ai is Triller’s agnostic AI solution, and it is embedded inside of virtually every major social media network. It claims to execute over 500 million transactions each quarter, but we are unable to understand the profitability of each of those transactions. This product enables content creators to connect directly with their audiences, spotlighting the content across a broad range of social media sites. It measures audience engagement with the content and helps monetize this content through personalized user experiences. Amplify.ai automates SMS text messages between content creators, brands and their audience using proprietary artificial intelligence technology. As Triller goes public, we envision learning more details about Amplify.ai and Triller’s specific AI revenue model.

Julius is the “bridge” that connects Triller’s 2.2 million influencers and content creators with roughly 25,000 different brands. It facilitates marketing engagements. Once again, we are unable to fully appreciate how profitable this business could become, until we get additional metrics, details, etc. We look forward to understanding this business in further detail, as Triller becomes a publicly traded entity.

In terms of valuing this business, we can only hypothesize on its value. Can Triller monetize these 2 billion annual AI transactions to the tune of a penny per transaction? That would equate to $20 million a year in revenue. Could it generate $0.05 per transaction? That would be $100 million of revenue. We obviously don’t know the profitability of these AI transactions, but we guesstimate that this business could be valued at $50 million to $100 million. We imagine that Triller’s independent valuation expert likely had it significantly higher, but without specific metrics, we cannot assign it a valuation much higher than this.

The Triller App:

We view the Triller App as the platform or medium connecting 2.2 million content creators (influencers, artists, musicians, athletes, brands, etc.) to consumers. It has an enormous reach, stated at 450 million users, but we have doubts about this sizable metric. We would love to know how many of these users are “active”, meaning they have logged on and interacted with the platform in the last month or quarter. From our perspective, this is a more valid and valuable metric. A year ago, Triller stated that it had 550 million lifetime sign-ups, but a market intelligence firm (Apptopia) called that number into question. A year ago, Apptopia estimated that Triller had been downloaded just 73 million times since its launch in 2015.

Triller’s list of content creators, celebrities, partnerships and influencers is impressive. In our opinion, we view Triller’s core competency to be in the music category. It has the ability and optionality to bring emerging artists to a wider and global audience.

Brand examples:

McDonald’s, Pepsi, Walmart, L’Oréal, Puma, Charmin and MLB

Celebrity examples:

Snoop Dogg: He was arguably the biggest star (not competing) in the Paris ’24 Summer Olympics. He has performed at Triller events but also served as a commentator during some of its boxing matches. His involvement has brought a lot of attention to the platform.

Justin Bieber: Bieber has performed on Triller’s platform, including a high-profile New Year’s Eve concert in 2020.

Lil Wayne: The rapper has promoted his music and participated in events on Triller, adding to the platform’s appeal in the hip-hop community.

Charli & Dixie D’Amelio: Although they rose to fame on TikTok, these popular social media personalities have also posted content on Triller, leveraging their massive following to bring attention to the platform.

The Weeknd: Triller has featured exclusive music releases and content from artists like The Weeknd, further bolstering its presence in the music industry.

Competition:

Its most valid competitor is TikTok, which is also not publicly traded (owned by Chinese company ByteDance). In addition, we would argue that Triller competes with Meta-owned Instagram Reels, Snapchat and Google/Alphabet’s YouTube. These three publicly traded companies have a combined market cap of approaching $3.5 trillion, so Triller’s competitors are clearly well-funded.

Triller differentiates itself from competitors by operating an “open garden”. This essentially means that Triller is not the sole seller of advertising within or around this social content. Triller content creators can distribute their content across any platform, building lasting and durable customer relationships and monetization opportunities.

Triller generates revenue in this area through revenue sharing agreements and service fees. On the revenue sharing front, Triller earns a percentage of advertising fees, premium content, events, pay-per-view fees, subscription sales and merchandise sales. In terms of service fees, Triller earns revenue from brand and campaign fees, transaction fees, monthly subscriptions and SaaS fees.

Legal:

The legal climate surrounding TikTok could be a game-changer. It appears that Congress is looking to force TikTok’s Chinese parent company (ByteDance) to sell its stake in the next 9 months, or face being banned. We still need additional information about how this would occur, but it clearly provides Triller with an opening. TikTok is appealing the ruling, and the case is currently in the court system, creating uncertainty about the future of TikTok and its parent company.

Triller may be able to leverage this chance to establish itself as a significant alternative. In this case, Triller might be able to gain a sizable chunk of TikTok’s user base, strengthening its position in the market. In fact, Triller has already set-up a process that allows for TikTok users to transfer their data to Triller, if TikTok is banned. The app’s growing user base, and the fact that it is a US-based company, might allow Triller to capitalize on a potential TikTok ban.

Risk:

The social media and entertainment industries are extremely competitive, and Triller facing much larger and well-capitalized competitors. There is intense competition for users’ attention and advertising revenue. The success of Triller will largely depend on its ability to differentiate itself from competitors and attract a loyal user base.

In addition, Triller is subject to a variety of legal requirements in various jurisdictions. These obligations include advertising standards, content controls, and laws pertaining to data protection. Can Triller create an infrastructure to properly maintain these stringent requirements, laws and rules? As of today, we aren’t sure its management team is capable of navigating these rough waters.

Valuation of Triller’s App:

We don’t have enough information right now to value Triller’s App on its financials. However, we can place a value on its users, accounts and opportunity. In our opinion, we believe that Triller is worth $1 billion. How do we arrive at that price? We believe it is worth roughly $2.25 per account.

Let’s examine some of the other comps we listed earlier. Meta, including Facebook and Instagram, has nearly 4 billion monthly active users, generating over $30,000 in revenue per account. We can calculate a P/E, EV to EBITDA, P/FCF and other traditional valuations on Facebook, but we can also back into a valuation per MAU (monthly active account). With an enterprise value of over $1.35 trillion, each MAU at Facebook is worth $325. Now, Facebook generates significant revenue and profits off of each user, but it is much more developed and established than a Triller account. Can Triller accounts be worth 1/100 ^th of a Facebook account? That would imply a Triller App valuation of $1.5 billion ($3.25 x 450 million). We don’t think this is entirely off base. Snap isn’t particularly profitable and has roughly 800 million MAUs. Based off of 2023 results, Snap is getting a valuation of roughly $25 per account. Could Triller get 1/10^th of Snap’s value per account? Once again, that would be $2.50 per account on 450 million users or $1.1 billion.

Triller TV:

The 3^rd pillar of Triller is its broadcasting or TV platform. Triller TV ranks as one of the largest combat sports apps and is among the fastest-growing global content companies. FITE TV, which Triller owns, rebranded to Triller TV in December 2023. A FITE+ subscription costs $7.99 per month, offering viewers a wide range of content including boxing, MMA, BKFC, wrestling and even slap fighting. It’s a one-stop shop for everything violent (we love it!).

Triller entered the combat sports space in November 2020, when it financed and hosted a boxing match between former heavyweight champion Mike Tyson and former light heavyweight and middle weight champion Roy Jones Jr. This fight included a co-main event between internet celebrity Jack Paul and a retired, former NBA player Nate Robinson. While the fights were uneventful, musical performances by Wiz Khalifa and commentating by Snoop Dogg were enjoyable.

While it focuses and specializes on combat sports, Triller TV has recently broadened its content to include lifestyle, fashion and music. It certainly has the potential to broaden its reach outside of combat sports, but we believe its core viewership will be in this attractive, growing segment (males, between 18 and 30). Instead of focusing on a declining linear TV model, Triller TV is an OTT (over-the-top) subscription service. In our opinion, this is much smarter and the way the entire industry is headed. Our analogy is linear tv is like a 10-inch, black and white TV, while OTT apps are 80-inch, 4k experience. There’s no comparison!

Triller TV Valuation:

It is available in 7 million households, and it broadcasts roughly 3,000 events every year. A key component of Triller TV will be it broadcasting BKFC events. In our opinion, the traditional PPV (pay-per-view) model is broken. When there’s a big boxing fight or UFC event, the number of illegal streaming websites is too high to count. Instead of charging an interested fan $100 to watch a fight, we think it is smarter to go the Netflix route.

Why not charge $5 per month and allow your interested fans to watch all of your content? Netflix has succeeded by giving their monthly subscribers great content. Could Triller TV get its 5 million households to pay $5 per month for its content? Netflix is able to charge 2x to 3x this amount, but its content costs significantly more to create. This leads Netflix to have EBITDA margins in the low 20’s%. However, its enterprise value per MAU is over $1,100. We think Triller TV could become much more profitable and still generate solid revenue per MAU.

In a year or so, we believe that Triller TV could be worth over $100 per MAU (under 1/10 ^th of Netflix). Our $100 per MAU is calculated at 1-year of subscriber revenue ($8 per month x 12). If they can keep pricing stable and eventually get 7 million paying subscribers, that implies a valuation of $700 million. We think a 1-yr payback and valuation is fair, for this exciting content.

We think Triller TV could become a “must have” app, broadcasting various shows, events, etc. However, we believe Triller TV’s real strength is combat sports, specifically BKFC. In our opinion, the crown jewel of the Triller franchise is BKFC. It drives user engagement and is the primary source of content for Triller TV and FITE TV.

Bare Knuckle Fighting Championship (BKFC):

Admittedly, we are 100% biased, as we have been a happy investor in BKFC for several years. We believe the best way to understand BKFC is to attend a live fight. We would suggest you sit close to the squared circle (not a standard ring), but don’t wear a white shirt, as you might get some blood on it. Once people experience a BKFC event, they will be sold.

After attending a BKFC fight, the next thing an analyst must do is understand its management team. To truly appreciate its Founder and CEO, we would suggest you read a detailed article written about Dave Feldman in Rolling Stone Magazine. Stayton Bonner wrote this article, which gives the reader a true appreciation of who Dave Feldman is and what the ultimate opportunity with BKFC is. Click here to read the article.

Dave Feldman hosted his first bare knuckle fight in 2011, and this was the first sanctioned bare-knuckle fight since 1889. That’s right! It was over a century between sanctioned bare-knuckle fights. Fast-forward to 2024 and BKFC is hosting fights in 34 states and 9 countries. At a recent BKFC fight in South Florida (at the Hard Rock Casino in Hollywood), the event was sold out with certain tickets priced at over $1,000.

As shown in the accompanying chart, BKFC plans to host 60 fights this year across 34 states and 9 countries. By the end of 2027, BKFC believes it will be approved in 48 of our 50 states and be hosting events in 15 countries. We think it is fairly safe to assume that average event attendance will double (from 6,000 to 12,000) over this same time period.

In 2022, Triller invested in BKFC with the intention to acquire a majority stake. However, after nearly two years, Triller has yet to fully close on its acquisition of BKFC. Since it has not finalized all of its acquisition payments to BKFC, it will not get the 70% to 75% of BKFC it initially planned on owning. Time will tell, but Triller might ultimately own just 50% of BKFC, when this deal with AGBA finally closes.

When analyzing BKFC, it is important to look at certain metrics and understand that it is truly in high demand. When valuing BKFC, we will attempt to frame its uniqueness and growth profile, as opposed to traditional cash flow and profitability metrics.

Here are some interesting bullets / facts on investing in sports, leagues and specifically BKFC:

• There are a growing number of investors and a limited supply of teams and league ownership opportunities.
• Sports teams are hard assets to value, as fandom typically overtakes strict dollars and cents economics
• Recently, Sportico’s 2024 NFL rankings assigned a value of over $10 billion to the Dallas Cowboys
• This is over 70x what Jerry Jones paid for it in 1989 at $140 million
• At the time, Jerry Jones was laughed at and mocked for grossly overpaying
• In April 2024, Forbes estimated the value of the New York Yankees to be at $7.5 billion
• In 1973, George Steinbrenner purchased the Yankees for $8.8 million (just an 850x return over 50 years)
• Returns aren’t necessarily year to year, but rather come in the form of a massive return when an owner sells
• Instead of 32 teams in its league, each with a different valuation, BKFC is ownership in the actual league
• It’s the equivalent of owning shares in the NFL, NBA, MLB or the NHL and not an individual team
• The league has costs to put on great fights, between paying its fighters and hosting events
• When a league signs a media rights deal, the league profits, and then money trickles down to each team
• If you have desirable content, leagues can earn enormous money from media rights deals
• Amazon Prime Video will show one NFL playoff game this year and it paid the NFL $120 million
• BKFC presents an immense opportunity for investors of Triller shares

Competitors:

BKFC also competes against prominent combat sports organizations like the UFC, Bellator, and ONE Championship. The combat sports market is dominated by the UFC, due to its wide fighter roster and its global media presence. We believe that BKFC is the #2 combat sports league.

UFC is owned and operated by TKO Group Holdings, a majority owned subsidiary of Endeavor Group. It held its first fight in 1993 (Denver, CO) and it did over $1.3 billion in revenue last year. It has a 5-year domestic media rights agreement with ESPN for $1.5 billion.

UFC was purchased by Frank and Lorenzo Fertitta in 2001, after it had financial issues. Their company (called Zuffa) was sold in 2016 to Endeavor (owners include Silver Lake Partners, Kohlberg Kravis Roberts and MSD Capital) for over $4 billion. In 2021, Endeavor bought out the remaining Zuffa owners for another $1.7 billion, Finally, in September 2023, Endeavor Group merged with the wrestling league WWE to form TKO Group Holdings. Vince McMahon serves as its executive Chairman and Dana White serves as the UFC President. The entire organization is estimated to be valued at $12 to $15 billion.

UFC and Bellator control a large portion of the combat sports industry, which include boxing and mixed martial arts. In order to draw spectators and sponsors, BKFC will need to carve out a distinctive niche. Fighting in the ring is hard, but so too is competing against leagues like the UFC. For example, many UFC and boxing fights occur in Las Vegas, the mecca for combat sports. Why has BKFC failed to get sanctioned for bare knuckle fighting in Nevada, when dozens of other states have approved it? Is UFC and its leader (Dana White) strong-arming and preventing the sanctioning body in Nevada from approving bare knuckle fighting?

Stars:

Besides the cost of putting on an event, BKFC needs to pay its fighters. One of the positives (from a fighter’s point of view) is that BKFC apparently pays significantly more than the average UFC fighter. As the entity that pays to put on the fights, this is an expense that BKFC needs to bear.

Right now, the highest profile fighter in BKFC’s roster is Mike Perry. We do not have exact per fight payouts for him, but he did reportedly sign a $8 million contract with BKFC (we think it is safe to assume that each fight earns Perry $500,000 to $1 million).

Possibly, the largest combat sport star in the world is Conor McGregor. Despite not fighting in several years, McGregor is the biggest pay-per-view draw in MMA (mixed martial arts), with the five highest-selling UFC events in its history. His fight versus Khabib Nurmagomedov at UFC 229 drew over 2.4 million pay-per-view buys (the most ever for an MMA fight). In 2021, Forbes ranked McGregor as the world’s highest-paid athlete, earning a reported $180 million. He has endorsement and brand deals with Beats by Dre, Monster Energy, Reebok, Bud Light, and Burger King. He launched in 2018 an Irish Whiskey named Proper Twelve and apparently sold it in 2021 to Proximo Spirits for $600 million. Continuing in the alcohol space, in 2021, McGregor launched Forged Irish Stout. We’ve had it and it’s quite good! In April of this year, McGregor invested in the BKFC and became a shareholder. We don’t have his specific cost basis, but the impact of McGregor’s involvement has been noticeable. While we don’t expect McGregor to ever fight in a BKFC event, it could eventually happen. His biggest impact is promotional activity, announcing and generally growing the BKFC brand. As Dave Feldman said, when McGregor invested, “it’s just going to move the needle for us”. McGregor can bring added attention, push new advertising and sponsorship deals, as well as simply broaden BKFC’s global reach. We think his addition to the BKFC team is a great opportunity.

Risks:

BKFC does have risks, which can be summed up with two points. The first is growth capital. Will Triller give BKFC enough capital to allow it to grow and meet its potential? We believe the reverse merger with AGBA will provide the necessary funding. The second risk is regulatory. Athletic commissions and other regulating authorities have strict oversight over combat sports, as they attempt to protect fighter safety and the sport’s integrity. These rules must be followed, and breaking them could result in penalties, sanctions, or even the suspension. This is often regulated on a state-by-state basis. For example, why is BKFC licensed to operate in 34 states, but cannot get approved in Nevada? Is UFC influencing Nevada regulators to keep BKFC out?

By combining each of their strengths, the merged entity will be able to scale up market expansion, develop advanced monetization abilities, and even pursue strategic acquisitions/partnerships. These synergies will drive exponential growth across all of their businesses, from social media to FINTECH. BKFC’s inclusion in Triller’s portfolio involves integrating a social media and entertainment platform with a combat sports company’s brand and operations. We believe that Triller’s platform will allow the combined businesses to leverage specific synergies.

BKFC Valuation:

We don’t have visibility into specific BKFC event profitability, but we do understand some of the metrics driving BKFC’s business. In 2022, BKFC’s revenue was $11 million, and it is projected to be at $35 million by the end of 2024 (over 200% growth). BKFC is estimating $65 million of revenue in 2025, which is up 85% and nearly 5x revenue from a couple of years ago.

As it grows its fighters, number of events and sport, we believe that BKFC will become quite profitable. It is still in its high-growth phase, but we believe BKFC can ultimately generate operating margins of 25% to 30%. At this point, we can’t assign a P/E or EV to EBITDA multiple on BKFC, but we can use its closest comp (UFC) as a benchmark. While we hate using revenue multiples, UFC is trading at roughly 12x. If BKFC can deliver $65 million in revenue next year, we think it could be valued at 8x to 10x. That implies a valuation exceeding $500 million and possibly approaching $650 million. This valuation is assuming that BKFC’s revenue continues to rapidly increase. In the Rolling Stones article (attached above), it mentions a modest valuation of BKFC at $411 million. With the capital, it will receive from Triller to grow its franchise and increasing publicity from fighters like Conor McGregor, we think BKFC is fairly valued at $600 million. We would like to mention that they are not currently profitable due to still holding debt. However, we believe this will change in the coming years, especially with their newly announced FuboTV deal.

Triller & BKFC Management:

In our opinion, a key investment characteristic is the ability of management to properly allocate capital. When it comes to financial companies, this is probably one of the most important aspects of success or failure. When there is consolidation or acquisitions involved, management is critical to understand. Does this management team have the experience to handle an acquisition of this size? How will various cultures and locations be properly integrated? Both the acquisition of the majority stake in BKFC, as well as the integration of Triller and AGBA will present significant integration difficulties. A seasoned management team could handle this transition, but we haven’t had the opportunity to see Triller’s management team in action.

We have had conversations with Prem Parameswaran, who was the acting CFO of Triller, but he left the company in July 2024. We have spoken with Ryan Kavanaugh, but his role is unclear at this time. Over the last year, we have spoken with Bobby Sarnevesht, and it is clear that he has taken the leadership mantle for the Triller business. We have known Dave Feldman for a few years and believe he is the perfect person to take BKFC to the next level. However, he needs to grow the BKFC franchise, and only time will tell if Triller provides that necessary capital. As it relates to AGBA, we have spoken with Bob Diamond but are still unclear as to his future day-to-day involvement. Lastly, we have spoken with Mark Carbeck, who, we believe, will become the company’s CFO going forward. We have spoken with numerous members of the former and existing Triller team, but we still need to see them execute a focused game plan and deliver shareholder value.

Their challenge is immense, and success is in their hands. We will see if they are up to the task, as these types of consolidating activities require careful preparation and execution. When there are various cultures at each division, it could present a problem. Unique corporate cultures and management styles can lead to internal company conflicts. It is essential to ensure seamless integration, while preserving business continuity.

Triller’s Stand-Alone Valuation:

Triller’s unique position in the rapidly evolving fields of social media, digital entertainment, AI technology and combat sports is unique. If we add AGBA to the mix, we don’t think there is a valid peer or comparable. This is why we believe it is necessary to value each business separately and arrive at a sum of the parts.

We have laid out a valuation of the Triller App at $1.1 billion, the AI businesses at $$75 million, Triller TV at $700 million and BKFC at $600 million. We don’t know the ownership stake that Triller has in BKFC, but we will simply assume it is 55%. That implies their ownership position in BKFC is worth $330 million. Summing all of the Triller diverse portfolio of assets together, we arrive at a valuation of $2.1 billion, or $5.65 per share. For our Triller-specific price target, and to be conservative in our valuation, we will discount our target by another (25%). This equates to a valuation of Triller assets of $1.6 billion or $4.25 per share; roughly ½ of the Board’s $3.2 billion appraisal. Now that we have arrived at a decent understanding of Triller, its businesses and a price target, let’s turn our attention to AGBA and how Triller is finally getting public.

FINTECH:

We believe a FINTECH company is “anything utilizing technology to improve an established process.” From our perspective, AGBA’s digital distribution platform is the definition of using technology to improve the traditional financial services industry. We were not aware of AGBA before this transaction but have done extensive work trying to understand its business and operating model.

At Manole Capital, we focus on the FINTECH sector but tend to spend the majority of our time on US-based companies. We have no exposure to the Hong Kong or Chinese markets (as far as direct corporate ownership), so we’ve never analyzed AGBA or its prior results. Let’s dive into their details….

Who is AGBA?

AGBA is a financial services company based in Hong Kong that serves more than 400,000 clients. AGBA conducts business as a B2B (business to business), as well as a B2C (business to consumer) model. It has 1,600 financial advisors distributing financial and healthcare products on its platform, and it considers itself a “one-stop financial supermarket”. This type of model has not been terribly successful in the US, but it does have precedent in Asian markets (i.e., Tencent and Alibaba).

Looking at AGBA’s business model, we do not see the need to extend outside of their core markets of Hong Kong and Mainland China. The opportunity is quite large in their existing footprint. AGBA considers the GBA (Greater Bay Area) their main marketplace and the opportunity is immense. This specific area is 13% of the Chinese economy, all within a 2-hour living circle. This GBA area is estimated to have a ’23 GDP of over $2 trillion (similar to New York and Tokyo) and over 86 million people. In addition, over 30% of Hong Kong and Mainland China’s population will be older than 65 years old by the year 2050 and will need the products that AGBA sells. Lastly, Mainland Chinese typically do not have access to many of the products and choices that AGBA offers. It intends to market directly to Chinese clients, from its Hong Kong-based subsidiaries, through various referrals and partnerships. These attractive demographics provide AGBA will ample tailwinds to succeed, which gives their management comfort projecting aggressive sales targets and projections.

AGBA’s has four different businesses or pillars.

These four areas are:

1. Distribution,
2. Platform,
3. FINTECH, and
4. Healthcare

The largest revenue pillar is Distribution, which accounts for over 90% of AGBA’s ’23 revenue. There are 1,200 consultants in this business, which represents the largest IFA (independent financial advisor) in Hong Kong. It acts as a licensed insurance broker and registered MPF (mandatory provident fund). Essentially, AGBA’s advisors and consultants sell a complete range of financial planning and wealth management products, like life insurance, savings accounts, mortgages, etc. It earns its fees through traditional commissions, and life insurance represented 94% of AGBA’s products sold last year.

The second revenue pillar is AGBA’s One Platform business. Through this matching platform, AGBA acts a financial supermarket providing over 1,800 different financial products. Banks, brokers, family offices, and other IFAs can utilize AGBA’s platform to sell financial services to their clients. Financial disclosures state that there are 90 insurance providers selling 1,152 products and 53 asset managers selling another 1,137 products on the platform. For this access, AGBA earns platform fees.

The Healthcare business is AGBA’s 3^rd revenue pillar, and it is primarily a 4% stake in HCMPS (reported as a minority investment). The operating business is Dr Jones Fok & Associates Medical Scheme Management but is commonly known in its marketplace as JFA. It was founded in 1979, and it has a network of over 800 doctors in Hong Kong and Macau. It provides cost-effective healthcare to over 280 corporations and 300,000 members. In addition, AGBA has made numerous investments into its healthcare franchise.

The last pillar for AGBA is their FINTECH business, which is essentially a few minority stakes in growing FINTECH companies.

Key investments that AGBA has made are:

Tandem (UK app-based bank), with AGBA buying a 4.5% equity stake for $27.9 million in 2018 Goxip (Hong Kong fashion media platform), where AGBA purchased a 3.6% stake Zai (peer-to-peer F/X marketplace), that AGBA bought an 8.4% stake for $7.8 million

Risks:

While the combined company might state that AGBA will leverage Triller’s AI and data to expand into the US market, we do not put much credence on that opportunity. We view financial services as very local, meaning that financials tend to do well in their “home market”. While Citi has pushed into some non-US markets with success, the majority of large US financial institutions tend to stay US-focused. Rules and regulations differ dramatically between countries, and it is very hard to take a financial company global. It is just remarkably hard to pull off…

Management Team:

We haven’t spoken to any of AGBA’s management team, but public filings give us a sense of their backgrounds. It appears most started working at AGBA in November 2022 and came from various financial institutions. AGBA has been led by Ng Wing-Fai (age 56), who has served as CEO and Chairman since November 2022. Prior to joining AGBA, Ng was a Managing Director at Salomon Smith Barney and the Head of its FIG group. Ng graduated from the University of Cambridge and holds an MBA from Harvard University. Mr. Desmond Shu Pei Huang (age 50) is the CFO of AGBA, and he has over 20 years of experience in the financial services industry (working for firms like Primus Holdings in Hong Kong and DRB-HICOM Berhad in Malaysia). The COO of AGBA is Ms. Almond Wong Suet Fai (age 53) and she has over 20 years of experience at firms like AXA, Sun Life Financial, Hutchison Ports, CSL Telecommunications and Wyeth.

Financials:

According to AGBA financial disclosures, they expect that profits will begin to turn around in 2024 and 2025, with positive profits across all four of their businesses. While specific numbers have not been provided for this potential turnaround, AGBA will need to focus on substantially cutting down its operational costs. In a recent press release, AGBA reported that they have cut down operational costs by 40%, which is a great start. However, they will need to continue implementing stringent cost control measures to improve its bottom line.

AGBA is still in its infancy and is impressively growing. Its revenue climbed by +170% in 2022 and then by +74% last year to $54 million. As we look forward, one might expect sales to approach $75 million this year (up nearly +40%). AGBA continues to invest in its business and has not been able to generate free cash flow yet. However, we have seen estimates that it plans to be cash flow profitable by the 4 ^th quarter of 2024. If that occurs, we would imagine that AGBA can scale and bring operating margins towards 15% to 20% in a couple of years.

Valuation of AGBA Standalone:

In terms of valuation, we are going to materially discount AGBA’s stated $800 million target. Valuing AGBA is tricky, as it is still growing its top-line, and it is yet to deliver free cash flow and profitability. We have run a standard DCF on the business, but it is only as good as our inputs (which are definitely guesstimates). We ran a DCF valuation on AGBA with the following hypotheticals and assumptions. For this analysis, we assumed FCF for the next 5 years to be $5 million, $7 million, $10 million, $12 million, and $15 million. These numbers are based on recent AGBA revenue growth trends, but are clearly guesses (we have been given no guidance from management at all). We then used a perpetual growth rate of 3% and an industry standard WACC of 10%. Based on these projected cash flows and assumptions, the estimated DCF valuation of AGBA would be $173 million. As we previously stated, DCFs for a growing company like this is almost useless, so we thought we would attempt to triangulate a valuation another way.

Our second attempt to value AGBA was a revenue multiple. Manole Capital hates using revenue multiples on businesses for several reasons. First, our number one priority in investing is free cash flow. We prefer to use FCF yield, P/E and/or EV to EBITDA to value companies. Second, companies using revenue multiples typically have no FCF, so they are forced to find alternative valuation methods. This is why we place very little importance on revenue multiples while conducting valuations.

If a DCF won’t work and we hate revenue multiples….we will need to get somewhat creative. If we assign a $25 million value to the Healthcare business, based on the number of corporations and underlying clients it has, we think that is fair. This is a minority equity stake, and it doesn’t flow through to AGBA’s financial statements. Then, we assume that its FINTECH investments are worth $25 million, which is roughly what AGBA paid for them (Tandem Money and Zai) and what their year-end carrying amounts are (on the 2023 10-K). While the Platform business is interesting, it currently has modest revenue (only $5 million in ’23) and no profitability. In fact, this division experienced a (18%) decline in revenues last year. Being generous, we will assign it a valuation of $10 million. This implies that the bulk of the AGBA valuation has to come from its Distribution business. With over $50 million of revenue, an impressive footprint of IFAs, and an open-ended opportunity in Asia, we believe this business is conservatively worth 2x to 3x revenue. This would imply that AGBA is worth roughly $185 million ($25 million + $25 million + $10 million + $125 million).

Our guesstimate is at over a (75%) discount to the independent appraisal of $800 million, so we don’t believe we are being aggressive. For a business like AGBA, we can triangulate that we aren’t terribly off base. Now, this $185 million valuation is a far cry from management’s initial take of $800 million (20% of its stated $4 billion target). We’ll just assume that management was placing an optimistic valuation on its business and stating a target or goal. From our perspective, we will assume AGBA’s stand-alone valuation of $200 million, or $0.50 per share. You can clearly dispute any of our calculations (and you would be entirely correct), as we simply do not know too much about the AGBA business. We are simply trying to understand if it has any intrinsic value to the combined entity.

To read more about AGBA’s business and its plans with Triller, please click the following link to access an in-depth, 15-page report on AGBA by Edison Group.

Conclusion:

The synergies between Triller, BKFC and AGBA are intriguing. This could become one of the few companies that effectively combines social media, entertainment, and the financial sector. When AGBA announced their reverse merger with Triller, the investor presentation highlighted $4 billion of intrinsic value, implying a share price of $10.75. The market clearly has not assigned a similar valuation to the combined company, as the shares are currently trading at$2.15 per share or $800 million market cap, with 372 million total shares outstanding. As we indicated above, we believe AGBA’s four businesses are worth $185 million and Triller’s four businesses are worth $1.6 billion, implying a total valuation of $1.8 billion or $4.80 per share. This is 45% of the Board’s $4 billion independent valuation assessment, but +120% above today’s stock price.

AGBA’s established financial services sector is somewhat unusual to these two businesses, but it had two key benefits. One, it has a public listing, which helps get Triller and BKFC public. Two, AGBA brings necessary capital to assist in growing both the Triller and BKFC brands. The fact that AGBA is probably worth what the entire company is currently trading for, is enticing. In our opinion, this deal strategically merges Triller’s social media platform with a fantastic combat sport, in its early growth development stage. Will the public company keep AGBA going forward? Can AGBA expand the range of the users that can be targeted, especially in the United States and Asian markets? Could it look to spin that business off in a year or two, or even sell it? Is there a way that AGBA can utilize Triller’s AI applications to assist its advisors with financial decisions or content creation?

When we reviewed Triller’s latest SEC filings (through September 2023), we noticed $126 million of short-term debt and $46 million of long-term debt. AGBA’s balance sheet (December 2023) also reported a net debt of $18.5 million. As of this time, we have no idea on the combined company’s debt profile, but we assume it remains above $190.5 million.

We believe these are the necessary discussions that will occur post-merger. As of now, the sell-side community has largely ignored Triller and its opportunity. Over the next 3 to 6 months, we envision several Wall Street analysts picking up coverage and setting price targets that are significantly higher than today’s current price. Maybe even the reverse merger with AGBA occurs in September, as their recent proxy vote indicated. We will see, but there’s a lot of optionality with this position, and we like the potential upside once its lists.

Warren Fisher, CFA

Founder & CEO

Manole Capital Management

warren@manolecapital.com

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