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New Activist Reports
Citron Research tweeted bullishly about New Providence Acquisition Corp (NASDAQ: NPA — $577 million), a SPAC in the process of acquiring the space-based broadband company SpaceMobile.
J Cap Research published on Nearmap (ASX: NEA — AUD$1.06 billion), an Australian aerial imagery company. J Cap alleged that Nearmap “is laying off sales staff and offering discounts in a panicked attempt to improve margins” and is aggressively recognizing revenue to offset declining growth.
Ontake Research published on Kerry Group (LSE: KYGA — GBP19.2 billion), a London-based food distributor that has completed dozens of recent acquisitions. Ontake’s report criticized Kerry’s accounting and highlighted potentially inflated acquisitions.
ShadowFall Research also published a critical Twitter thread on Kerry:
Newly launched Big Wave Research published a long thesis on MKS Instruments (NASDA: MKSI — $9.23 billion). If you are interested in mid-cap tech follow them on Twitter @BigWaveResearch and sign up for their free newsletter here.
Mike DelPrete criticized the unit-economic disclosures by Zillow (NASDAQ: ZG — 46.1 billion) and Opendoor (NASDAQ: OPEN — $19.9 billion) and wrote,
“Opendoor and Zillow are emphasizing unit economics of iBuying that exclude tens of millions of dollars of expenses - ranging from salaries to marketing to technology - that are necessary to operate the business.”
Alex Pitti published a second Seeking Alpha article on Arcimoto (NASDAQ: FUV — $935 million), an electric vehicle company that has sold a total of 31 units. Arcimoto’s CEO responded that he has “Pitti” for Arcimoto short-sellers:
Could ARK Invest Blow Up?
ARK Invest, the hot active management ETF firm founded by Cathie Wood, has seen assets grow from around $10 billion to $60 billion over the last 12 months. ETFs, unlike hedge funds, do not have long-term capital and can rapidly gain or lose assets based on the sentiments of its retail investors. These changing flows can act as a self-fulfilling prophecy for ARK, which invests in relatively illiquid companies.
For example, on January 31, ARK’s Innovation ETF owned 6.04 million shares of Invitae Corp (NYSE: NVTA — $9.63 billion), or about 3% of the company. As of February 12, ARK’s Innovation ETF owned 17.3 million shares of Invitae, or about 9%. By buying such a large stake in a short period of time ARK Invest may be artificially enhancing its returns with its buying pressure. This could also happen in reverse.
If Ark Invest faced outflows it would need to sell some of its holdings, which could cause them to fall. If hedge funds start front-running the forced selling, Ark Invest’s performance could deteriorate further, which would lead to more outflows, then more selling, and then worse performance, and then more outflows, etc… A recent Bloomberg article found that ARK Invest owns at least 15% of 11 companies it is invested in. The Wall Street Journal raised similar concerns and highlighted that 43% of ARK’s assets are in companies where it owns at least 10% of the company. These large stakes are difficult to exit quickly.
One way to counteract illiquid stakes could be to have extra funds invested in liquid placeholder stocks. For example, ARK’s Genomic Revolution ETF, which focuses on companies “enhancing the quality of human life,” recently invested $185 million in Google.
That might not be enough. In 2019, the Woodford Equity Fund in the U.K, collapsed after persistent outflows left the fund with only illiquid holdings. What makes ARK Invest especially problematic is its daily transparency about its trading as well as the potential to front-run forced selling. For example, one hedge fund manager wrote,
If enough people have the same philosophy, ARK may sink.
What to Read
“Wall Street Short Sellers: Hated For Centuries” (NPR)
“Dorsey says the haters tend to miss an important role that short sellers can play as watchdogs, researching and exposing overvalued or even fraudulent companies…"
“Robinhood Faces Wrongful-Death Lawsuit Over Young Trader’s Suicide” (WSJ)
“The family of a 20-year-old student who took his own life after believing he racked up big trading losses on Robinhood Markets Inc. filed a lawsuit against the company, saying its ‘reckless conduct directly and proximately caused the death of one of its victims.’”
“Axon CEO Talks Insane Short-Seller Attack” (Benzinga)
“Ultimately, my personal secretary was a mole who was sending information to short sellers who were then using it to manipulate the stock…”
Tweets of the Week
Until next week,
The Bear Cave