What Everyone Ought to Know About Agloco

[1] First, you have to download and install Agloco’s viewbar. This software (vaporware?) has yet to be released and every time a date is given, it makes a nice whooshing sound as it passes by. For the sake of this analysis, let’s assume it is actually released.

[2]So you surf the web while running the viewbar. But you don’t get a one-to-one proportionate credit for the actual hours you spend online. No matter how much longer you spend online, you’ll only get five measly hours accrued a month. And they “reserves the right to change these rates at any time for any country”.

[3]Next, these ‘Agloco hour units’ will accumulate. At some point, who-knows-when (if ever) they will be converted to something else. Note that they “reserves the right to change the [conversion] rates at any time”. So you can find yourself on shifting ground and get much less than what you thought you’d get.

Now, here’s the knee slapper: Agloco will convert these ‘hour units’ not into cash but into shares. But Agloco is a private company in start-up mode; has no public shares to distribute; is not profitable; hasn’t even released a product; and its founders failed the first time they tried this venture (what they lack in creativity, I suppose, they make up in persistence). Furthermore, according to SEC regulations, Agloco can not distribute unregistered shares to the public. While the ability of Agloco to produce and distribute value hinges on being able to going public, it’s ironic that the least amount of attention has been paid to this point.

From Agloco’s website:

“Remember, the company is 100% owned by the Members…”

No, it is not. It is a private company owned by a very few. I can cut them some slack for aggressive promotional copy but this is a bald faced lie.

[4]Assuming it does actually go public (I would really like to see an investment banker sit through a meeting with a straight face) Agloco will then have to use its shares as currency to pay its members – that was the original point, before all these twisty turns, remember? When it begins to do so, the proverbial shit will hit the fan.

If we assume Agloco is successful, they will have to regularly pay their considerable and probably growing user base a massive amount of money. Which means selling a massive amount of shares on the market. Guess what will happen to the value of the shares when this unflagging selling takes place? Guess what will happen before the selling hits as smart traders position themselves ahead of the avalanche of sell orders?

[5]But wait, maybe I’m being too harsh here. Let us again give them the benefit of the doubt. Let’s assume that people don’t make a mad dash to cash in their shares… eventhough they’ve been slaving over a hot monitor for months. The next hurdle to the ‘members’ seeing money is for the firm to become profitable.

[6]The chances of this are very slim for obvious reasons. Even if they do become profitable, the founders will rightfully want to get a return on their risk capital before paying anyone else. Again, let’s assume not only that Agloco becomes profitable but that their board declares a cash dividend (as opposed to a sneaky stock dividend).

[7]Now here is the payoff that the ‘members’ had been waiting for. Assuming all the above, we finally get to the single mention of cash payment to users in Agloco’s website:

“As Agloco grows and the company generates positive cash flow, we will be distributing the excess cash to Members and shareholders of the company.”

At this improbable point, having jumped through hoop after hoop and assumed everything but the kitchen sink, the members are getting paid a pittance: dividend ‘cents’ on any ‘dollar’ shares owned. And that is assuming that in Agloco’s glorious ascent, hackers the world over haven’t unleashed massive ‘bots’ to mimic surfing and made it a victim of its own ’success’. Or that the SEC hasn’t nabbed the founders on charges of attempting to circumvent securities law by promising the public unregistered securities in return for membership.

If you are more jaded than I am, you may point out that at each node through this circuitous path, Agloco has built in several mechanisms to control the amount of ‘value’ they distribute – whether limits on hours, conversion rates of shares or cash, reserving the right to kick anyone out for any reason, etc. These built in ‘firewalls’ are there for the protection of the founders and the business but they can also be used quite easily to manipulate the user base to extract the most from them while reciprocating a minimum.

Having said all that, I don’t think Agloco’s a scam. It is a poorly conceived scheme that appeals to those who know very little about finance, share issuance and regulation. I really do wish Agloco would go public. How else would I get a chance to short it?