- This week, we have registered three new major short calls.
- We saw a rare public campaign by Safkhet Capital, linked to many previous campaigns such as Wirecard or Valeant. This time they decided to release their own report. The stock targeted is Adtalem Global Education Inc. (ATGE), a for-profit university business. Safkhet aimed at it due to allegations of poor business model and questionable corporate governance. Most importantly, the report believes the company is likely to struggle due to possible regulatory action, challenging financial position, and students who might be inclined to fight ATGE's allegedly deceptive tactics.
- Next report was also released by another heavy hitter, Hindenburg Research. The activist targeted LifeStance (LFST), a $2.3bn mental health provider, due to allegations linked to how they run the business, cash flow and apparently obvious red flags when it comes to patient care.
- Finally, on Friday, the Friendly Bear published a short call on P10, Inc. (PX).
- Lastly, we are tracking the most recent stock price gyrations at several previous targets. We focus on Safkhet's new campaign, a volatile China Hustle 2.0 stock and a rebounding streaming platform.
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Bits and Pieces
- Viceroy debated sell-side analysts about SCA live on TV. The stock is up 1% since the call last week.
- NINGI updated SCA's figures for them.
- NINGI Research sees recent price action in SINCH as highly dubious. The stock is now up 1% since the initial report.
$SINCH's share price doubled in the last few months based on the assumptions that $TWLO will acquire them. From the start, a bogus assumption b/c in our opinion, the FTC & FCC would've never allowed it. There was a reason why Sinch bought Intelliquent and why $TWLO didn't buy it.— NINGI RESEARCH (@NingiResearch) February 1, 2024
- Jehoshaphat's mentions their past target
It turns out we were way too bullish about $MXL's organic growth. Their revenues in Q423 were approximately -50% lower than their revenues in Q421.— Jehoshaphat Research (@JehoshaphatRsch) February 1, 2024
And they just guided Q124 revenues to be about -65% lower than Q122.
(Stock performance has been exactly what you'd expect.)… https://t.co/vkJ3fz32bW
- Citron sees a reversal setup at INGN.
The stock is down 90% from its highs and basically trading at cash, despite $350 mil in sales all because previous management was nothing short of negligent in their projections and handling of the sales channel.— Citron Research (@CitronResearch) January 31, 2024
- Spruce is vindicated a couple of years later as they flagged IRBT's troubling business in around 2018.
Sad day for $IRBT. Wasn't there are short activist that constantly warned about that company? I bet that guy's twitter feed is blowing up kudos and apologies from all the trolls over the years.— Spruce Point Capital (@sprucepointcap) January 29, 2024
- Viceroy sees the same problems with ABR as macroeconomic factors indicate troubles.
Texas is one of $ABR's biggest markets. @DallasFed's assessment of the situation is damning. Arbor's exposure leads us to believe it's an equity wipeout for ABR.— Viceroy (@viceroyresearch) February 1, 2024
"With apartment values down 25-30%, massive amounts of equity have been wiped out." https://t.co/18JOb07R4l
This week, we have seen plenty of stocks move in the right direction for the short-sellers. One of the biggest movers in the right direction was a new campaign released this week targeting Adtalem Education (ATGE), which plunged 18% in the past five days. This for-profit university business was targeted by none other than Safkhet Capital. This is their first public call, even though the team is well known for other short-selling campaigns such as Wirecard, Valeant, and others. The activist targeted this $2.3bn for-profit university due to allegations of poor business model and questionable corporate governance.
Most importantly, the report believes the company is likely to struggle due to possible regulatory action, challenging financial position, and students who might be inclined to fight ATGE's allegedly deceptive tactics. According to the activist, the company should write down its acquisition of Walden, another for-profit university. Walden faces a high risk of losing eligibility to receive federal funding, which is at the core of the for-profit model.
$ATGE should impair its $1.48 billion acquisition of Walden, which was booked as $651 million in goodwill and $833 million in intangible assets. (4/14)— Safkhet Capital (@SafkhetCapital) January 30, 2024
Moreover, Walden is apparently being investigated by the Education Department, which has not been disclosed to investors. ATGE's overall student performance is also another concern. The company's universities have extremely low percentages of students that graduate compared to the national averages. The students are then also allegedly unable to get employment, which could help them to pay down the debt they incurred during their studies.
Graduation rates and attrition across all $ATGE schools are trailing far behind national averages. At Ross Medicine (RUSM), on-time graduation is at under 16% with the average student taking over $350K in debt! (6/14)— Safkhet Capital (@SafkhetCapital) January 30, 2024
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 struggle to showcase consistent financial results without the risk of regulatory action.
The campaign raised quite a lot of interest and had an early impact on the shares which are now down over 18%. The CEO of ATGE went on TV to defend their track record, and the business also released a separate rebuttal to the report. Safkhet was not impressed and is preparing further reports.
We are not surprised $ATGE was unable to directly address our analysis or questions, especially when it refused to provide clarification on new and ongoing investigations and regulatory discussions, even to its own bullish analysts during earnings. (1/2)— Safkhet Capital (@SafkhetCapital) February 1, 2024
Other short-sellers offered their take on the report, saying that the situation is complicated but that the report is excellent.
I've received a lot of questions about the the @SafkhetCapital report on $ATGE. We have had a sell/short call on $ATGE for some time for a long list of reasons. Background, I've been following the space for 20+ yrs, so nothing in this report was new to me, nor do I agree with…— PAA Research (@ActAccordingly) January 30, 2024
Twitter was mostly bearish citing Safkhet's previous track record, but there were quite a few bulls trying to discredit the allegations.
Another stock that somewhat went in the right direction for short-sellers was Jin Medical (ZJYL), which is down about 17% in the past five days. Just two weeks ago, Culper targeted this Chinese-based wheelchair company due to allegations of classic China Hustle 2.0.
Most importantly, the report believed the company is using undisclosed related-party transactions to boost share prices. The newly announced orders in December were allegedly both connected to ZJYL's CEO. Supposedly, it also has not filed any results since March of last year and has noted material weakness in many of the preceding filings.
Despite the strong allegations and Culper's estimated downside of more than 90%, the stock has flown into the face of short-sellers at first. The shares are up over 117% since the initial call. The stock got popular among the short-squeeze crowd and Twitter is filled with threads on counterfeit shares and how the stock will fly higher. Most of it ignores the allegations about the fundamentals. Culper did not comment on the price action so far. The recent drop this week was a result of volatile trading.
On the other side of the tracks, we have seen only a handful of stocks go against the short-sellers. One of the biggest movers was Rumbe (RUM) which jumped about 24% in the past five days. This is another short by Culper and one that the activist has been talking about a lot. Culper targeted this video platform due to allegations of lying to shareholders and the market.
Most importantly, the report believed the company has inflated its user base by over 60%. The activist dug out estimates of third-party firms focused on tracking traffic, and both estimate substantially fewer organic views and users. Apparently, the company also overcounts by counting multiple devices from single users, among other tactics such as obfuscating disclosure regarding user numbers.
The campaign has been a wild ride, with Culper mostly being on the right side as the platform struggles to shake off the allegations. Despite that, investors are willing to prop up the shares, especially in light of the Barstool deal, which lifted the stock last week. The market continued to push RUM up in the expectation that the deal could somehow transform the business. Culper is skeptical.
1/2) Rumble $RUM looks to have new competition from none other than $DWAC.— Culper (@CulperResearch) January 31, 2024
On December 22, 2023, DWAC disclosed for the first time that it has begun testing a new video streaming service which would provide "a home for cancelled creators." Sounds familiar... pic.twitter.com/f7h26GkovB
RUM remains somewhat popular among retail traders as they like the short-squeeze potential of the name. RUM's CEO is also trying to make the campaign personal and try to argue that freedom of speech is being attacked.
Big hitters are back
Apart from the first public campaign by Safkhet, we also spotted Hindenburg's first pick in 2024. The activist targeted LifeStance (LFST), a $2.3bn mental health provider, due to allegations of dubious business model and questionable corporate governance.
Most importantly, the report believes the company is dropping quality standards in order to chase revenue and income. Apparently, the company's churn rate in clinicians is higher than what the SEC filings showed previously. The mix of therapists and psychiatrists (higher margin) is also worsening as Hindenburg believes 79% of providers are therapists instead of two-thirds when the company was disclosing the mix. This creates further pressure on the company to boost profitability as cash is dwindling due to significant quarterly cash burn and legal issues connected to the IPO.
In 2021 the company last disclosed ~66% of its clinician base were therapists, which are lower-margin vs. higher-margin psychiatrists.— Hindenburg Research (@HindenburgRes) February 1, 2024
In 2024, our scrape of the LifeStance website shows the mix has deteriorated: ~79% of the company’s clinician base are therapists.
Moreover, Hindenburg also sees major red flags as to how the care providers actually operate. The activist signed up for a session and saw an alarming rate of pill-pushing by providers regardless of what the patient might actually need or share during the session. This further questions LifeStance's unique value, which is being offered to patients using the services.
Despite reporting to the psychiatrist that we had been in a good mood since Christmas, 32 minutes into our first session we were offered Pfizer’s Zoloft for treating depression and anxiety.— Hindenburg Research (@HindenburgRes) February 1, 2024
By the end of a 15-minute follow up session we were prescribed Zoloft.
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 unlikely to improve its fundamentals quickly enough to replenish cash and perhaps reputation. The market initially sold off shares hard. LFST was at one point down over 20% on the day of the release. However, it seems investors quickly pushed back, and the stock is now down just 6%.
It does not seem that there is major pushback on Twitter. On the contrary, we noted other activists chiming in and agreeing with Hindenburg.
The company did not release a response, at least not yet. Therefore, it will be interesting to see how the company will fare, especially since Hindenburg pointed out the need for extra cash as soon as next quarter.
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* Note: Presented data and analytics is as of available on 2024-02-02 UTC 15:00.
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