September issue of Empire Market Insider; Facedrive's shares plummet; Katharine is launched and our cross-country RV adventure begins

By Whitney Tilson

Friday, September 10, 2021
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1) After the market close today, we're publishing the latest issue of my colleague Berna Barshay's Empire Market Insider newsletter...

For this month's recommendation, Berna and her analyst Alex Griese did some boots-on-the-ground research in the Sunshine State to take a look at company operations and meet with management. They've found an undervalued stock that sports a well-covered dividend – a rarity in today's low-yield world.

If you aren't already an Empire Market Insider subscriber, find out how to gain risk-free access to the new issue by clicking here.

2) Activist short seller Nate Anderson of Hindenburg Research can add another notch to his belt...

Shares of Canadian ride-hailing startup Facedrive (FD.V) have imploded – falling by more than 96% from their early February peak – due to all sorts of bad news, summarized in this article: Facedrive execs depart in shakeup as tech startup's shares plummet after meteoric rise earlier this year. Excerpt:

One of the founders of Facedrive, a ride-hailing startup that has seen a precipitous drop in its stock price after a meteoric rise earlier this year, is resigning as chief executive and chair of the company.

Sayan Navaratnam, the 47-year-old entrepreneur behind Facedrive – which refers to itself not as a company, but a "people-and-planet first tech ecosystem" – is departing effective Sept. 1, Facedrive said Thursday in a news release. Chief financial officer Fairy Lee also intends to transition out of her role by Sept. 24, and a director, Bill Kanters, is stepping down as well, the company said.

Mr. Navaratnam is being replaced by Suman Pushparajah, Facedrive's current chief operating officer. Another founder and director, Junaid Razvi, is taking over as chair.

How did Facedrive, a tiny Canadian tech startup, become a multibillion-dollar company?

The departures follow a steep decline in the company's share price, which has plummeted from a high of $60 to a little less than $6, a decrease of more than 90 per cent over just seven months. Before the plunge, the company had been a darling of the TSX Venture Exchange, one of its top 50 performers. Facedrive's market cap of $5-billion in early 2021 briefly rendered it more valuable than companies such as SNC-Lavalin Group, CI Financial, and Maple Leaf Foods.

But Facedrive has struggled to turn a profit to match its sizable valuation. In the first quarter of 2021 Facedrive reported $4.3-million in sales and a loss of $5.9-million.

Mr. Navaratnam did not respond to a request for an interview.

Facedrive's origins are in ride-hailing, which it marketed as a sustainable alternative to its rivals, promising to offset carbon emissions with tree planting. But it has pivoted to food delivery, online retail and contact tracing for COVID-19.

On July 23, 2020, Anderson published a critical report on the company: Facedrive: A $1.4b ESG Stock Promotion with a Hollow Core Business, Flailing Business Pivots and Multi-Million Dollar Payments to an Opaque BVI Entity; 95% Downside. Excerpt:

  • Facedrive recently went public with the core premise of being an "eco-friendly" ride hailing app that allows users to select electric or hybrid vehicle options. EV excitement has fueled the stock to a $1.4 billion market cap and an absurd 908x revenue multiple, making it the most expensive >$1 billion tech company in the world.
  • Facedrive's Canada-based ridesharing business appears to be dramatically impaired by COVID. While the company claims 13,000 registered drivers on the platform, we estimate current active drivers at ~500-600 total, suggesting an overstatement of ~95%.
  • Rather than focusing on tackling just one resource-intensive highly competitive market like ridesharing, Facedrive recently entered a second – food delivery. We found Facedrive's platform has a total of 17 restaurants compared to Uber Eats' 400,000 and GrubHub's 300,000.
  • We called several of the "most popular" restaurants on the Facedrive Foods page. One didn't seem to have a working phone number, and two said they don't use Facedrive anymore.
  • Facedrive even joined the COVID-hype train, launching a COVID contact tracing app. We reached out to their partner on the project who confirmed what appears to be overstatements of the projects' publicly stated progress. 
  • Despite all of this, Facedrive has propelled itself to a $1.4 billion market cap on a slew of buzzword-laden press releases. This has been helped by stock promoters who received payment through an opaque newly-renamed BVI-registered entity. The deal was inappropriately disclosed as being related to marketing the company's rideshare platform (not the stock). The site admits in its disclaimers that stocks often plunge after their promotion cycle ends.
  • In June 2020, Facedrive paid $8.2 million to promoters for 1 month of services. This is the largest promotion payment we have ever seen and was greater than Facedrive's entire operating expenses over the last year.
  • Additionally, the company has engaged in multiple related party transactions. Its 2019 filing statement detailed paying 4 entities controlled by its CEO, representing approximately 24% of its 2019 operating expenses.
  • We do not think Facedrive's core ride hailing business is viable and we find its "marketing" and related party spends to be extraordinary and alarming. We have doubts about the veracity of the company's claims relating to its ill-conceived side projects that appear hastily thrown together for PR value.
  • Facedrive's CEO has a history that bodes poorly. He was Chairman/CEO of another a public company, Creative Vistas, which saw its shares precipitously plummet 99%.
  • We believe this "story" stock is heading toward a hard repricing, as we see de minimis overall value in the company's operations. Our 1-year price target is CAD $0.70, representing 95% downside.

While Anderson has been completely vindicated, this case study also underscores how perilous short selling is if your timing is off. As you can see in this chart, while the stock trickled down for three months after Anderson's report, it then skyrocketed by roughly 700% before subsequently collapsing:

3) Yesterday was move-in day for new students at Carleton College, so we helped Katharine haul her stuff up to the third floor of Musser Hall and get set up.

It was a bit of déjà vu for Susan and me, as it was seven years to the day after we did the same for Alison, in the same dorm no less! Here are the before and after pictures of Katharine's room:

After some activities in the afternoon, we took the mandatory family picture and said our goodbyes...

Rather than flying home, Susan and I rented an RV this morning in Minneapolis – here's a picture of our home for the next 10 days:

Today we're driving to Sioux Falls, South Dakota, to visit our sister-in-law's parents for a few hours before continuing on to a campground just outside Badlands National Park. We're going to spend all day tomorrow there and then go see Mt. Rushmore and do some hiking in the Black Hills National Forest on Sunday.

Next week I'll send pictures from climbing Devil's Tower, seeing Glacier National Park, and going to my cousin's wedding in eastern Washington before dropping off the RV in Seattle and flying home...

Best regards,

Whitney

P.S. I welcome your feedback at [email protected].

Whitney Tilson
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About Whitney Tilson

Prior to creating Empire Financial Research, Whitney Tilson founded and ran Kase Capital Management, which managed three value-oriented hedge funds and two mutual funds. Starting out of his bedroom with only $1 million, Tilson grew assets under management to more than $200 million.

Tilson graduated magna cum laude from Harvard College with a bachelor’s degree in government in 1989. After college, he helped Wendy Kopp launch Teach for America and then spent two years as a consultant at the Boston Consulting Group. He earned his MBA from Harvard Business School in 1994, where he graduated in the top 5% of his class and was named a Baker Scholar.

Click here for the full bio.