Activist Shorts Weekly W39

Activist Shorts Weekly W39
  • 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. 

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Bits and Pieces

  • Hindenburg notches another official win, although the episode ends with a fine from the SEC for KNDI. 
  • 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
  • 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

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 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. 

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. 

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. 

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. 

New Campaigns 

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. 

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. 

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. 

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. 

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. 

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* Note: Presented data and analytics is as of available on 2023-09-22 UTC 12:00.

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