Activist Shorts Weekly W31

Activist Shorts Weekly W31
  • This week we have not registered any new major short calls.
  • While there are no new reports, we have seen many updates to ongoing campaigns. We focus on Fuzzy's campaign against an allegedly dubious fitness chain which is borrowing money to buy back its own stock. We also write about the latest APLD developments which still suggest serious problems with corporate governance. We focus on Viceroy and their back and forth with Hexagon. 
  • Lastly, we are tracking the most recent stock price gyrations at several previous targets. We focus on a questionable SaaS company, a reversal of share price action at a tech company and we share the latest price action in a robotics company. 

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Bits and Pieces

  • Vindication for Hindenburg Research: 

Billionaire investor slashes dividend and revamps strategy after Hindenburg attack

  • Hedge funds lose $6bn betting against cruise lines and hotels (with Breakout Point’s data via FT)

  • “Analysing a company's economic prospects has taken a backseat to watching Reddit message boards and options expiries” via Third Point’s letter

  • Bleecker believes their CACC thesis is playing out, but the stock is refusing to move in the right direction. The shares are up 17% since the report from early 2023.

  • Iceberg gets another validation for their EOSE thesis. The stock is down 48% so far from the time the activist re-initiated the short

  • Scorpion provided an update on HRMY after the biotech provided Q2 numbers. The activist sees further downside as they do not believe the company is somehow turning around. The stock is down 21% since the report in March. 

    Big Movers

    This week we have seen several stocks move in the right direction for the short-sellers. One of the biggest movers in the right direction was the newest campaign targeting Zoominfo (ZI), which plunged 27% in the past five days. This SaaS company was targeted by Wolfpack Research due to allegations of bad corporate governance.

    Most importantly, the report believed the company relies on purchasing data from a dubious entity which might have stolen the information. ZI is then passing the data through an entity which acts as a front for the dubious entity. This apparently puts into question how clean and legal data ZI's customers are using. 

    It seems the thesis is now in full swing as the company showcased challenging Q2 numbers which had many traders sell the stock. Mainly, the company cut their full-year guidance and talked about a tough revenue outlook. Twitter traders mostly agree with the market direction. Some were surprised as they thought the bad news was priced in, but others are saying that the company is unlikely to find a quick way out of this. Wolfpack did not comment on the developments. The stock is now down 54% since the initial report. 

    Another stock that went in the right direction for short-sellers was Vicor (VICR) which is down 26% in the past five days. It was Akram's Razor who targeted this tech company due to allegations of overvaluation.

    Most importantly, the report believed the stock had enjoyed a pop due to the recent AI craze and Nvidia rally, but in reality, the company stands to lose out in the AI race. Their business has been eroded over the years as their technology edge apparently does not stand out anymore as it did in the early days. 

    VICR has done a significant reversal. It first climbed up on the back of what seemed like positive earnings, only to then fall sharply after Twitter traders started to discuss whether VICR's report was as positive as it seemed, given the business developments outside of the company in the competitive space. Akram still did not provide any news. Despite the recent downturn, the shares are up over 35% since the initial report at the end of June. 

    On the other side of the tracks, we saw several stocks going against short-sellers in a major way. One of the biggest movers was Symbotic (SYM). This robotics company is up 37% in the past week. It was NINGI who targeted SYM due to allegations of dubious product and questionable corporate governance. 

    Most importantly, the report believed the company's main contract with Walmart is unlikely to yield much value for shareholders and is also apparently at risk of showing that SYM's product will continue to be unprofitable. SYM allegedly has little expertise in delivering such a significant contract as refitting WMT's centers with their robotics. SYM had to hire third parties to manage the process, which will significantly lower the revenues and margins for SYM despite SYM touting a $12bn price tag for the contract. SYM products were never used at scale, and the company managed to sell only a few systems in the past 10 years. 

    The market decided to prop up the shares after Q2 data which were seemingly positive. However, NINGI believes nothing has changed, and the same red flags are still present. 

    The stock is now up over 38% since the initial report. 

    Smaller updates 

    This week was perhaps defined by a bit of the summer lull that might be going on in the activist short-selling space. However, this lull is mainly connected to new reports. The activists do not stop commenting on ongoing reports. Perhaps the first note we would want to raise is from Fuzzy Panda, who shared a whole thread on XPOF's quarterly earnings. The activist targeted this fitness company due to allegations of dubious corporate governance and a broken business model. 

    Most importantly, the report believes the company's founder has several red flags in his corporate history. He was apparently connected to a penny stock which used Bangkok boiler rooms to try and increase the share price. He was also sued several times due to fraudulent allegations, and many people have called him a crook. 

    It seems like the quarterly conference call played right into Fuzzy's hand, according to some of the tweets below. 

    However, the market does not seem to agree. The stock was actually up in the pre-market on Friday after the release got out. Twitter traders argued that Fuzzy is discounting several strong fundamentals. There was even a podcast episode released which tried to counter the bearish thesis. 

    That being said, it will be interesting to track the campaign going forward, especially because of Fuzzy's claims about how the founder of the company behaves. The stock is now down 17% since Fuzzy talked about it in June. It has staged somewhat of a rebound since the report which initially pushed the shares down by almost 40%. 

    We would like to also highlight the newest developments around Applied Digital (APLD). This stock has been written about by several activists. Most recently, The Friendly Bear launched a whole campaign against the datacenter company due to allegations of dubious corporate governance. 

    Most importantly, the report talks about APLD's dealings with RILY and how the investment bank is allegedly controlling managerial decisions to the detriment of APLD's shareholders. One example is APLD's decision to pay down debt from RILY ahead of maturity at a time when RILY needed cash for an acquisition. 

    The stock is now down almost 20% since this report at the end of July and it seems the red flags are not going anywhere. The Friendly Bear wrote a thread on APLD's 10k which further supported the initial claims such as undisclosed related-party transactions. 

    The company also apparently walked back of their commentary about the fundamentals and APLD will apparently need to raise cash soon. 

    Last but not least, we would like to share a smaller update on Hexagon (HEXAB). Viceroy went out on Twitter to talk about Hexagon's response to their allegations. The activist believes the key thesis still holds as per below.

    They also questioned Hexagon's disclaimer which is unusual and apparently is further showcasing serious lapses in corporate governance. 

    Despite the back and forth, the stock is not moving much. However, it remains down over 21% in the past month. 

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    * Note: Presented data and analytics is as of available on 2023-07-28 UTC 20:00.

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