The OTC is full of interesting stories, but every so often, one appears that piques our interest on another level. Tongji Healthcare Group, Inc. (OTCMKTS:TONJ) is a perfect example.
In August, this stock really took off on in response to news that the company had signed a Share Exchange Agreement to acquire West of Hudson Group Inc. This is clearly a reverse merger vehicle to take WOHG onto the public markets. What is sitting under the hood here is the big story: an asset called “The Clubhouse”. This is what all the excitement is really about.
As we will suggest, The Clubhouse is far more interesting than Tongi Healthcare – the prior controlling interest under the TONJ ticker.
The Cart Before the Horse
Tongji Healthcare Group, Inc. (OTCMKTS:TONJ) is now WOHG, for all practical purposes. And WOHG, as alluded to above, is the sole and singular owner of the Clubhouse, a network of content creation mansions in Southern California housing a collection of some of the most widely followed and talented social media influencers on the planet. According to company materials, the Clubhouse provides residence to influencers who, in aggregate, boast a total base of over 70 million followers.
The real play here is that the Clubhouse also has an in-house talent agency, Doiyen, that effectively owns the rights to capitalize on those 70 million followers to ink lucrative branding and marketing deals with outside brands or to popularize in-house brands created by WOHG.
“The Clubhouse provides a picturesque living environment complete with inhouse photographers and videographers, so we can maximize the depth, breadth, and scale our influencers can build across popular social media platforms while having fun and just being themselves,” commented Amir Ben Yohanan, CEO at Tongji. “Cultivating a large and committed following and then pursuing the popularization of in-house brands has demonstrated stunning recent success as a model. We would point to Kylie Jenner’s Kylie Cosmetics, which was valued at nearly $1.2 billion when it sold a controlling stake to Coty, Inc. last November. That value was built by first cultivating a broad influencer following. With this acquisition, we will have that value to harness.”
We would take particular note of the Kylie Jenner reference from the company in that release.
When a company decides to launch a branded product line, the old path was to do market research and then decide on the product, manufacture it, and then invest in trying to market it to the end-market consumer – to tell people how great it is and that they should buy it.
But social media has offered up a number of examples – with Jenner’s success being perhaps the most notable – that it may make more sense to put the cart before the horse. In other words, the Clubhouse is a means of driving interest and then figuring out what to popularize after the fact.
At this point, TONJ is a stock that contains the already-achieved success of the first piece in this equation. And let’s not kid ourselves – that’s the hard part.
All That Glitters…
We would also note that the Clubhouse isn’t just a collection of top influencers with a massive network of followers. It’s an engine for building influencers. You can think of it as an assembly line: new talent can be integrated into the mansions to learn from the best, gain traction in apprentice fashion through association, and grow their own brands by standing on the shoulders of giants.
That’s an enormously important piece of this story because it confers value on the shares of the company rather than the particular influencers involved in the project at any one time, which is critical.
As noted in the company’s release, global social media ad spend is expected to jump 20% in 2020 to reach an estimated $84 billion. According to Zenith’s data, social media advertising will account for 13% of total global ad spend and rank as the third-largest advertising channel, behind TV and paid search. Social media ad spending surpassed print media ad spend last year for the first time ever, according to Zenith. That trend is almost universally expected to continue and even accelerate over coming years.
Ben Yohanan added, “We have immediate plans to expand The Clubhouse to additional locations and develop new influencers, and we look forward to discussing more related details with our shareholders soon.”
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