Native Ads: When Stock Promotion Brilliance Meets Retail Credulity
Native Ads: When Stock Promotion Brilliance Meets Retail Credulity
An Inside Look Into One of Canada's Most Savvy Stock Promoters
Certain names have been changed in this story to protect the identities of those involved.
Jim recalled leafing through the company’s presentation, perplexed. The pages were littered with complex charts and intricately annotated diagrams that he didn’t quite understand. It was a small mining company that traded on Toronto’s Venture Exchange and he had just been tasked with covering them for a “marketing” campaign. His findings would soon be published on news websites trafficked by hundreds of eager retail investors and market participants. But there were a few problems…
Firstly, he had never even looked at a mining company before, let alone a company like this one: early-stage and speculative in nature. Secondly, and perhaps most pressing, his report was due within the next 2 days.
A few years ago, Jim interned as a content creator at Native Ads in Vancouver, BC. It was a slow summer, and he had spent more time hanging out with his friends than thinking about stocks. Soon he would have to return to his university town, slumped in the middle of nowhere.
“It was pretty good money”, he tells me, candidly. “It was just something to do while I was trying to figure out my life. I was in school for finance and I had worked hard to recruit without much progress. I just wasn’t feeling it. I wasn’t even sure I still wanted to go into finance.”
Jim eventually finished that article, which was published on time. He would write several more news articles about the company and the metal it mined throughout the course of that summer. A month after the company had contracted Native Ads for its services, its stock had fallen off by more than -19%. Within a year it had plummeted -58%. Today it trades at around a cent per share, having been deprived of all its value.
Programmatic Stock Promotion
Native Ads’ specialty is what’s known to them as programmatic advertising. In a nutshell, here’s how it works: Native Ads curates, produces, and publishes content (existing investor materials and custom articles written by Native Ads employees) through a network of websites and online forums. The form and function of Native Ads’ written content emulates those of a legitimate piece of media – except it’s not real. It’s an advertisement made to look and feel like regular web content (hence, a native ad).
The agency’s clientele is mainly comprised of small-cap public companies, many of which are based in BC. When a company hires Native Ads, the ultimate goal is to bring their marketing content in front of the eyes of as many potential investors as possible. This can be achieved because Native has access to large sets of data on potential retail investor audiences. As you can imagine, these audience members may tend to err on the more unsophisticated / gullible side. But don’t just take my word for it - the graphic below, taken from their 3Q18 sales deck, lays out in plain sight their proprietary audience segments.
Native Ads also owns and operates the platforms in which they perform their promotional work on. A few of the websites they use to publish custom content on include:
I’m sure I’m missing a few more. Now, I know what you’re probably thinking: “wow Gary, those websites sound super sketchy.” And to you, my dear reader, I say: don’t be such a cynic. If I had it my way, I’d simply throw away my Terminal subscription. If I’m being completely honest here, Pot Stock News is all any Canadian institutional investor needs. At this point, I’m just waiting for them to set up MagicMushroomMedia.com and DroneDeliveryCanada.com.
Wait… both of those domains are taken.
If it hasn’t been made clear by now, I’ll spell it out for you. Native Ads is in the business of stock promotion. To their credit, it’s often not blatantly clear. Here’s how a typical program works, sourced from the same sales presentation.
From an outsider’s perspective, all of this content creation sounds monstrously arduous. The majority of the Native’s employees aren’t even in Canada, too. Of the ~38 active employees currently listed on LinkedIn, only 19 of them are located in Canada. Practically all of their back office - quality assurance engineers, customer service representatives, and a handful of media buyers - are based in Ukraine and Costa Rica.
The firm employs ~3 full-time editors. This is where people like Jim come into the picture. Jim, along with the editorial staff and a consistent supply of interns, were tasked with rewriting trending articles every day. Admittedly, according to Jim, these articles would be edited and reworded to a point where the end product could ultimately be passed off as original content. More complex editorials - such as mining and energy news, or anything involving complex litigation - would usually be outsourced. On a given day, Jim would write ~7-10 articles. During his busiest days, he could do ~14.
A crazy amount of work for little upside or pay. The company’s Glassdoor reviews (average rating of 2.2 / 5.0) corroborate this sentiment. They are definitely worth combing through. One post stated, when describing the cons of working at Native Ads:
Poor management. There is an “I’m your superior” and “you work for me” attitude; a very strict hierarchy that could be tricky to navigate. Very unorganized and chaotic. The lead changes his mind very so often and the entire team is expected to keep up with it, which results in a lot of unwanted and repeated work. No proper communication; most of the time the information is not given to the related people and loss or miscommunication leads to unwanted work.
The list of problems is extensive, and include everything from employees being underpaid / having to consistently work unpaid overtime, undertrained staff, department infighting, to a micro-managing and unorganized CEO.
When it came to covering more “speculative” companies, employees would be given extra materials to aid in their writing process: company documents, presentations, research papers, etc. The articles they wrote were, in effect, buy pitches on the client’s stock. Native Ads would subsequently purchase ad space on Google, Facebook, Yahoo!, and other social media platforms. The hope was to direct traffic into a separate landing page, which would house the promotional write-up.
The greater hope was to get the reader, none the wiser, to submit to their speculative instincts, hit a bid, and drive that share price up.
“We Create Demand For Your Stock”
Native Ads and its advertising platform, Titan, are backed by Beijing Genuine Network Media Group and its Chairman, Lipeng Lee. The entire operation is basically spelt out on the CEO’s LinkedIn page.
Jon Malach, by all accounts, seems like a pretty cool guy. Although the reviews left by his employees on Glassdoor would say otherwise. A surprisingly good DJ and martial artist turned marketing genius, he’s the type of guy you’d want to be hanging out with at King Taps on a Thursday night. Definitely the kind person you’d also want promoting your dinky mining stock.
Pictured Above: Jon Malach, student and Master of Rex Kwon Do
His founding partner, Charlo Barbosa, too looks like a qualified stock promoter and appears to have a wealth of experience in digital marketing. According to sources familiar with management, Charlo cultivates a large part of the firm’s more “opportunistic” client book.
Charlo founded and currently serves as the CEO of Good Gamer Corp., an e-sports gaming platform company that recently announced a pending ~C$3.5mn RTO with Credent Capital. It’ll certainly be interesting to see which ad agency this company chooses to partner with down the line. Charlo’s bio (found in the press release) also stipulates that Native Ads had generated +C$100mn in sales since its inception in 2014. If this is true, I am clearly in the wrong business.
Groovy as they may be, Native’s past is checkered, to say the least. Beginning in 2018, Jon and Charlo worked as advisors for LiteLink Technologies Inc. (TSXV: LLT), then known as AXS Blockchain Solutions Inc. At a Hong Kong cryptocurrency conference in 2019, Jon announced his involvement with the company, specifically in uBuck, a subsidiary owned and operated by LLT.
Jon was rewarded stock options in LLT valued at ~C$196k at the end of 2018. All the while, Native Ads had been contracted to the tune of C$1.0mn - running a promotional campaign for the compnay. It’s worth noting that the company’s marketing expense from inception to May 2019 totaled ~C$940k; a very expensive stock promotion campaign indeed.
The campaign appeared to be working for a while. However, the party came to an end when the crypto bubble burst. At its peak, LLT was a C$32mn company; by 2020, it was valued at ~C$6mn. Albeit, it has made a decidedly strong comeback over the last month on the back of the recent crypto hype-train and 2 strange acquisitions.
Native Ad’s broader track record, as exhibited by its clients’ stock performance after contract initiation, tells stories reminiscent of LLT’s.
Native’s client roster looks more like a shell company / RTO directory than it does a series of accomplishments. They’ve had a few notable wins: Else Nutrition, TAAT Lifestyle, MindMed, Bragg Gaming, Drone Delivery (after it came back to life in the back half of last year), and CloudMD. It isn’t surprising to see that Native’s clients err more on the speculative side of the investment spectrum.
Native’s promotional work hasn’t gone unnoticed. A handful of their clients have been booked in the past for potential stock promotion by regulators. Here are a few press releases from Chemistree and High Tide, and some important excerpts:
Chemistree Technology Inc.,… has been requested by OTC Markets Group to comment on recent promotional activity. The Company first became aware of certain promotional third-party newsletter activities through a notification by OTC Markets on June 11, 2019.
The materials prepared by Native Ads presented an overview of High Tide based on factual information contained in Company materials. High Tide did not have editorial control over the materials, although it reviewed them for factual inaccuracies about the Company. As such, the Company did not find any of the material to be materially false and/or misleading and any opinions expressed by the author is theirs alone. The OTC believes that the materials may have included speculative language and forward-looking statements about the Company's future prospects and, as a result, has advised High Tide that it has placed a stock promotion flag on the Company's profile that will remain in place for 15 days.
Stock promotion is a complicated business, and I know I’ve barely scratched the surface here. Native Ads is a good starting point for anyone trying to obtain a vantage point into some of the behind-closed-doors action that too often gets overlooked by investors.
Jim and I spoke at length about the agency and the 2-3 promotes he worked on. It was a long phone call. Despite its shadier side, he still looks back on his time at Native Ads with a sense of fondness. He was, after all, just a kid back then. For what it is worth, he was able to hone his writing skills and had lots of fun doing so. And why wouldn’t it be fun? Small-cap Canadian capital markets is the Wild West.
But don’t take it from me. Take it from the firm that put out this magnificent ad:
Opportunistically,
G.G.
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