What happened
Shares of the Malaysian digital advertising and payments company Starbox Group Holdings (STBX -3.94%) traded more than 21% lower as of 11:48 a.m. ET today for no obvious reason, although the stock has traded with lots of volatility since going public last week.
So what
The digital advertising and payments solutions business listed 5 million shares at $4 per share for a total offering of $20 million. On the day of its initial public offering, shares of Starbox soared to a high of $46.21 before dropping back down later in the day. After the decline today, shares of Starbox are back trading just above $5, as of this writing.
Other small Asian IPOs such as AMTD Digital and Magic Empire Global Limited experienced a similar phenomenon when they went public earlier this year.
Starbox serves small and medium-sized businesses that do not have the resources to create in-house data management for marketing purposes. Starbox helps these businesses sell and market their products by linking them to retail customers. It makes almost all of its revenue by offering digital advertising services to advertisers on the platform. Starbox also processes transactions by offering cash rebates and providing payment services.
For the six months ending March 31, Starbox generated a $1.25 million profit on revenue of $2.9 million.
Now what
Starbox is still a very small business so even at a roughly $230 million market cap, it looks like a rich valuation. The ascent of the stock was clearly driven by manipulative trading. As a result, I plan to avoid the stock.