- This week, we have registered four new major short calls.
- GlassHouse hit us with another report featuring accounting allegations. This time it is a construction company with history of troubles with its shareholders and the SEC. Things apparently did not change, and the accounting is still dubious. Sunshine Research, a relative newcomer, wrote about a European business focused on satellites. According to the activist, the company is facing troublesome headwinds which are eroding key areas of the company.
- Bleecker wrote about a known retail stock which is facing significant issues regarding the way they run their lending business. Two main customers who helped to offload its loan book might be tapped on the shoulder by the regulators. Finally, Culper Research released a new report featuring the classic China Hustle 2.0 allegations. The targeted e-commerce logistics business is apparently overstating its revenues.
- Lastly, we are tracking the most recent stock price gyrations at several previous targets. We focus on a classic China Hustle 2.0 company, a notorious Indian fintech business and a datacenter business refusing to come down further.
Save time and ask us for independent short thesis verification. Get our custom support. Contact Breakout Point!
Bits and Pieces
- Hindenburg notches another official win, although the episode ends with a fine from the SEC for KNDI.
The SEC just charged $KNDI with fraud over false statements & omissions relating to the company's U.S. EV launch, including issues raised in our @HindenburgRes report.— Nate Anderson (@NateHindenburg) September 26, 2023
The co. settled and will pay a $710,000 fine.
No word on the fake revenue issues.https://t.co/AehkICbcJ4https://t.co/M6FLExvF2Mpic.twitter.com/VWdzTtx1RD
- Hint that accountability still exists?
- Culper continues to point out that Rumble (RUM) is apparently not the platform investors believe it to be. RUM is down 33% so far since the initial report.
This weekend, The Guardian reported that "a number of large companies" have pulled their ads with $RUM in the wake of the Russell Brand allegations.— Culper (@CulperResearch) September 25, 2023
Ironically, @chrispavlovski once touted $RUM (see YouTube interview) as a safe haven, where "Rumble's clearance mechanism in… pic.twitter.com/oUenRPIlBw
- XPOF is facing further issues and Fuzzy continues to see significant downside. The shares are down 38% since the initial report.
- Viceroy's crusade against MPW is far from over, as the new update suggests, even though the stock is already down 57% since the beginning.
Infra(ud)core – our latest $MPW report is live.— Viceroy (@viceroyresearch) September 26, 2023
Infracore, a 70% MPW owned, unconsolidated JV, has round tripped substantially all revenues tenant & related party, Swiss Medical Network (SMN), for over two years.https://t.co/0q5R1CFUaQ
SMN is $MPW's 4th largest tenant. 1/ pic.twitter.com/Pwq5NtahmL
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 a new campaign targeting GigaCloud (GCT), which plunged 23% in the past five days. This $305m e-commerce business was targeted by Culper Research just this week. The activist targeted GCT due to allegations of dubious corporate governance and business model.
Most importantly, the report believes the management has been overstating their financials. They claim to generate a significant amount of revenue from delivery in the US, which is apparently not supported by OTGDD. Culper visited several warehouses in key areas and found little to no activity. This is also supported by the allegation that GCT employs only five people per warehouse, a number unheard of in the logistics business.
5) For ex, investigators sat at a NJ warehouse for 4hrs and saw just a single parked $GCT truck and 4 passenger cars. At another site, boxes sat scattered in the dock for hours on end. Compare to AMZN & WMT warehouses - full lots, hundreds of staff, trucks moving constantly. pic.twitter.com/JmncnKlgzL— Culper (@CulperResearch) September 28, 2023
Moreover, the business claims that they have been able to achieve their level of success through AI technology, but Culper found no evidence of this being true. The activist also talks about several questionable connections to entities which are not stated as related parties but which should be.
10) For ex, nowhere in $GCT's filings are Nixxon Digital Marketing, Nisson Trading, Orien Life, or Orien Home disclosed as either subsidiaries or related parties. Yet these all list current and former $GCT insiders on corporate documents.— Culper (@CulperResearch) September 28, 2023
Due to all this, the short-seller sees a significant downside opportunity. The market is likely to eventually sell the shares as the company will have to come out with real numbers about its US operations.
It seems the market has broadly accepted the thesis and proceeded to sell the shares. Twitter reactions were mostly positive for Culper. Several bears joined in and said that the company is done. Bulls were trying to argue, but the reactions were far from visceral. The company did not react.
Another stock that went in the right direction for short-sellers was Ebix Inc. (EBIX), which is down more than 12% in the past five days. This $711m Indian-based fintech company was targeted by Hindenburg due to allegations of dubious accounting and questionable customers.
Most importantly, the report believes the upcoming IPO of EBIX's subsidiary, Ebixcash, is unlikely to bring much value. The subsidiary is apparently plagued with plenty of red flags, which raise significant questions about the true nature of the business. Two of its key customers who represent over $80m in revenue are apparently dubious entities. One reported only $150k in revenues in 2020, and its headquarters were empty. The other customer claims that they are an e-commerce business, but their website is not working.
The market has been slowly but surely accepting Hindenburg's view, as bulls have fewer arguments to counter with. This week, the stock got pressured as it was unveiled that the CEO Raina is going to get a hefty bonus while the stock is down 56% since Hindenburg first wrote about it. This has triggered several responses on Twitter.
#crazy ... but maybe he could use this money as a second charity attempt (from the latest 8K) $EBIX— Ales Vavra (@ales_vavra) September 25, 2023
Results of Operations and Financial Condition.
On September 19, 2023, Robin Raina, the Chairman and Chief Executive Officer of Ebix, Inc. (the “Company”), accepted… https://t.co/9tKrNIj3ov
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 Applied Digital (APLD), which jumped about 23% in the past five days. Most recently, it was Friendly Bear who wrote about this 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.
While there are apparently more news that are supporting the thesis, the stock refuses to budge and instead, it seems traders are happy to prop up the stock due to its exposure to crypto and AI. Friendly Bear believes there is still significant downside ahead. The stock is down 36% so far.
"Independent" board member at $APLD (spouse of $RILY senior exec) files compilation of absurdly delinquent Form 4s dating back many months. Maybe time to spend less on H100s and more on basic securities law compliance? pic.twitter.com/9WbNhq6QGy— The Friendly Bear (@FriendlyBearSA) September 28, 2023
This week we also registered three other new campaigns aside from Culper's China Hustle 2.0 target. GlassHouse Research was the first one to come out with their first report of 2023. The activist targeted this $1.6bn construction company due to allegations of poor accounting.
Most importantly, the report believes the company is overstating revenue by prematurely recording it without reaching necessary milestones. The management allegedly also uses low-quality projects to further boost earnings which supposedly contradicts what the management has said publicly. GVA is also apparently behind on many of its large projects.
Moreover, this is not the first time the company and its management team have had issues with accounting. GVA settled with the SEC just one year ago due to allegations of doctoring financials to show better results by manipulating costs and overstating revenues. The company was also sued by investors in 2020 for similar reasons. GVA shook up its management team and is apparently trying to sell a new story, but according to GlassHouse, this is a mirage, and the issues are still there.
Previously the SEC filed a complaint againsted Granite dealing with many fraudulent accounting concerns. pic.twitter.com/xGd2Zn3cUG— GlassHouse Research (@GlassH_Research) September 28, 2023
Due to all this, the short-seller sees a significant downside. The market is likely to sell the shares as the company will eventually have to show the true nature of its financials and fundamentals.
The market did not seem to react to the allegations. There was very little Twitter activity as not many traders acknowledged the report. The company also chose not to comment on the report. Thus the stock is actually up about 4% since Monday.
We also saw Bleecker Street write a new piece on Upstart Holdings (UPST). This once retail favourite $2.3bn lending platform was targeted due to allegations of poor business model.
Most importantly, the report believes the company is going to face a severe challenge in selling the loan they originate. The two biggest purchases of such loans are apparently at risk of facing significant regulatory challenges and could stop purchasing similar amounts of volume as in the past. The two parties accounted for 73% of revenue for UPST in 2022.
Upstart’s largest source of revenue and main purchaser of loans is Cross River Bank. CRB received a cease and desist order, something we think could lead to the bank being shut down in the next twelve months. pic.twitter.com/vkonw5BWKj— Bleecker Street Research (@Bleecker__St) September 28, 2023
Moreover, this is because of UPST's supposedly unique AI technology. The company enables third parties to rely on UPST's AI tech to validate the loans, however, Bleecker does not believe the technology is accurate and does not lead to better outcomes. In fact, UPST allegedly had to scale back a lot of their claims about their AI platform after being questioned by the SEC.
The crux of Upstart’s AI claims come from this measly seven securitization study they did years ago. When pressed by the SEC to substantiate claims in filings it instead deleted large swaths of claims. pic.twitter.com/YIGs9bNDw2— Bleecker Street Research (@Bleecker__St) September 28, 2023
Due to all this, the short-seller sees a significant downside opportunity. The market is likely to eventually sell the shares as the company is going to face an increase in loans stuck on their balance sheet which will expose the flaws allegedly found by Bleecker.
The market did not put pressure on UPST, but it seems Twitter reactions are somewhat favourable. Several traders pointed out the flawed business model and its challenges. That being said, you can still see the retail remnants here who are trying to argue with the short report and call it unsubstantiated. The company chose not to comment.
Last but not least, we also saw Sunshine Research come out with a new report focused on a European-listed stock. The activist targeted Eutelsat (ETL), a $2.6bn satellite services company, due to allegations of poor business model and weak financials.
Most importantly, the report believes the company's core areas are facing structural challenges which it will not be able to counter. The video segment is facing severe headwinds as consumers shift away and there are new technologies competing with Eutelsat. The data segment is facing similar trends, but here, the company's biggest problem is the competition as Starlink and others have enjoyed significant success.
Moreover, the company allegedly tried to enter the tech race by purchasing a bankrupt company, which is burning a lot of cash and is unlikely to be able to overturn the above allegations. This is troublesome since Eutelsat's EBITDA is dwindling as the core businesses are facing the issues.
OneWeb raised $3bn pre-bk, but despite this only launched 10% of the targeted sats— SunshineResearch (@sunshine_rsrch) September 28, 2023
ETL now needs to finance the constellation buildout. Despite previously spending ~€250m on capex, ETL is now guiding for an avg annual spend of €725-€875 million…out to FY2030! pic.twitter.com/7upHzdxFiN
Due to all this, the short-seller sees a significant downside opportunity of up to 50%. The market is likely to eventually sell the shares as the company will continue to publish disappointing quarterly results.
The reaction here is also muted as there were almost no Twitter mentions of the ticker after Sunshine lobbed its allegations. There was one exchange that the activist had with a shareholder, but it was a cordial exchange of ideas about the viability of ETL's business. The stock is up 2% The company did not release a reply.
FAQ | Q: Can I publish parts of the above data and analytics in an article? A: As long as you reference our work - yes, you can.
FAQ | Q: Could you provide more related data and analytics? A: Sure, contact us, and we'll try to help as soon as possible.
* Note: Presented data and analytics is as of available on 2023-09-22 UTC 12:00.
The services and any information provided by Breakout Point or on the Breakout Point website shall not be or construed to be any advice, guidance or recommendation to take, or not to take, any actions or decisions in relation to any investment, divestment or the purchase or sale of any assets, shares, participations or any securities of any kind. Any information obtained through Breakout Point and its services should never be used as a substitute for financial or other professional advice. Any decisions based on, or taken by use of, information obtained through Breakout Point and by its services are entirely at own risk.