Investments

We are short shares of Red Cat Holdings, a $1 billion drone manufacturer that’s added more than $900 million in market capitalization over the last 9 months mostly in anticipation of an award for the production of the US Army’s short range…

We are short shares of Oklo Inc., a $3bn nuclear energy company that went public via SPAC six months ago – with no regulator-approved design, no revenue for years, and no proven commercial viability for its planned 15-50 MWe microreactors. A story stock which….

We are short shares of Lumen Technologies, a $26bn telecommunications company trying to spin how AI will fuel the dramatic turnaround of a secularly declining business saddled with $19bn of debt. In recent weeks, a mixture of buzzy headlines, misplaced retail…

We are short shares of Riot Platforms, a $3bn bitcoin miner that does a far better job playing energy arbitrage games and issuing stock than generating shareholder value by mining crypto. Bitcoin mining is easily among the worst business models…

We are long bitcoin and short shares of MicroStrategy, a proxy for bitcoin which trades at an unjustifiable premium to the digital asset that drives its value. Shares of MicroStrategy have soared amid a…

We are short shares of Altimmune Inc, a pharmaceutical company developing a GLP-1 agonist, hoping to field a competitive drug that might grab a slice of the booming weight-loss-drug market. In December…

We are short shares of Joby Aviation, a $4.8 billion development stage aircraft manufacturer that we believe is years away from generating operating revenue and which we don’t expect will ever earn an economic profit. Joby has designed an electric vertical-take-off-and-landing (eVTOL) plane and plans to manufacture and operate thousands of them in a global “aerial ride sharing network” for urban “journeys of 5 to 150 miles… at significantly lower cost” than road, rail, or helicopter.

Underlying Joby’s project is the premise that battery-powered electric flight can be cheaper and safer than current alternatives. But is battery-powered flight even possible? Well, barely. Even the most advanced lithium-ion (Li) technology can’t simultaneously optimize on the 3 axes of energy consumption: power, capacity, and rechargeability. Joby’s eVTOL requires all 3: immense power for takeoff, landing, and climbing; capacity to enable range; and rapid recharge for efficient refueling. Joby claims its eVTOL will have 100-mile range and a 10,000-cycle life. But we estimate that, constrained by both Li limits and regulatory reserve requirements, maximum range will be 35 miles and the battery will last a few thousand cycles at best. That’s not a jet; it’s a science project.

Joby’s plan to manufacture hundreds, or even thousands, of eVTOLs annually at a unit cost of just $1.3 million is only slightly less naive. The production forecast ignores the experience of seasoned airplane manufacturers, which – using the same materials from the same vendors – took years to scale their production lines, and even then barely got to 100 units/year. And that’s at a lower degree of complexity and less rigorous demands for airframe robustness. The cost projection ignores, well, everything: there’s no aircraft the size of Joby’s in the world that can be manufactured at that cost, and Joby’s competitors – who are by no means pessimistic – are projecting a number 3 times greater. Is Joby immune from the laws of manufacturing? We think not.

Nor will it be immune from the laws of economics. Joby claims that fuel and maintenance savings will enable eVTOL flights at a fraction of the cost of comparable helicopter flights. But we broke down the cost of flying and found that the savings are negligible and don’t account for the cost of the battery and the aircraft, which, when considered, make the eVTOL flight more expensive than a comparable helicopter. Just another instance of Joby’s selective math and wishful thinking.

Speaking of which, Joby is guiding to type-certification by 2025, boasting of having completed 3 of the 5 certification stages. But those were mostly comprised of paperwork. Little real-life testing, analysis, and verification (Stages 4 and 5) have been achieved for the purpose of certification, and those make up the lion’s share of time, cost and effort expended in the certification process. It’s clear that it’s still early days in that respect, particularly given that major safety concerns – such as battery fires and rotor-related accident scenarios – have yet to be appropriately addressed. The logistical hurdles of pilot training and air traffic control also remain, both of which may take years to clear given recent FAA proclamations.

Building a plane is not like writing code. The combination of unrealistic manufacturing assumptions, naïve demand forecasts, and improbable timelines can be catastrophic for a company trying to produce just thousands of units at million-dollar-plus unit costs. Doubly so for a product that’s so operationally constrained that it has no realistic use cases. The best case for investors here is a rough landing. We think they should be bracing for a nose-dive.

Read our full report here.

We are short shares of Tilray Brands, a $2.4bn failing Canadian cannabis player running a familiar playbook for unsuccessful businesses trading in the public markets: given structurally unprofitable operations, the company has resorted to ongoing, shameless and massive dilution to stay alive, even as management compensates itself generously while operating metrics further deteriorate. Tilray touts itself as being different from other Canadian cannabis companies which lack positive EBITDA and free cash flow. But the truth is that Tilray is just obscuring losses by issuing shares, instead of recording cash expenses, to one of its largest suppliers. Furthermore, the company’s “cannabis adjacent” diversification strategy essentially entails incinerating shareholder capital by overpaying for doomed businesses that will ultimately only deepen the company’s losses. Valuation made little sense even before retail investors raced to chase recent buzzy headlines on potential marijuana rescheduling, which may be a boon for U.S. weed companies but does next to nothing for Tilray. Now shares are even more poorly positioned ahead of seemingly endless dilution required to fund operations and refinance convertible debt due to mature in a few weeks.

Tilray is caught in a nonstop dilution cycle. It doesn’t generate cash internally, and what cash it has on the balance sheet is largely thanks to dilutive equity offerings. To fund operations and maintain a currency for acquisitions, Tilray must keep its share price from joining the penny stock ranks of many of its cannabis peers. Consequently, in late 2021, as Canadian cannabis industry fundamentals continued to implode, rather than pay amounts owed to a key cannabis operating partner in cash Tilray opted to directly issue the supplier increasing amounts of stock. What began as $24m paid in cash in 2021 morphed into $100m in stock paid over the last two years, even as Tilray’s stock price fell to new lows. We believe these payments are poorly disclosed and allow Tilray to materially inflate reported EBITDA and free cash flow. We believe shareholders are being intentionally misled; without these convoluted stock payments, last year Tilray’s EBITDA would have been zero and its free cash flow would have been deeply negative (again).

Tilray’s recent participation in a broad rally for U.S. cannabis stocks based on hopes that the DEA will quickly reschedule marijuana ignores crucial differences among weed companies and reflects a misunderstanding of the issue. Cannabis is only 30% of Tilray’s total revenue and none is generated from US plant-touching operations. Rescheduling would not legalize the sale of marijuana for anything except FDA-approved drugs in specific forms that have been tested and approved. None of the touted financial benefits of rescheduling marijuana to Schedule III – potential tax savings, major stock exchange uplisting, implied progress toward SAFE Banking Act – help Tilray. Contrary to the sharp spike in share price, we are convinced that rescheduling Schedule III would actually be terrible for Tilray. Politicians will now focus on various policy changes that would still not allow Tilray to sell recreational cannabis products in the U.S., much less advance Tilray’s goal of using craft beer infrastructure to create THC-infused non-alcoholic beverages, all while lifting the prospects of potential competitors.

To distract investors from the stench of its cannabis business, Tilray has pursued craft beer acquisitions, recently agreeing to buy 8 brands from Anheuser-Busch. Investors cheered the move, but they might not have if management had disclosed that retail sales for key brands have declined over 20% YTD and the portfolio has only 10-15% EBITDA margins.

Once the buzz over declining craft beers, inflated earnings, and misunderstood rescheduling benefits wears off, investors will realize Tilray shares are worth only a fraction of the current price. Our sum-of-parts derived price target is $0.89 (-70%).

Read our full report here.

We are short shares of Carvana Co. (CVNA), a $4bn market cap online platform for buying and selling used cars. Originally hyped up as an innovative disruptor, Carvana is now recognized to be just a poorly run auto retailer struggling under the challenges of a severe industry downturn and the unsustainable burden of $6.5bn in debt. While many have shared concerns over Carvana’s business before, we voice ours at a time when shares have risen 165% in only a month on misguided optimism for profits that amount to little more than buffing the paint job on a totaled car.

Over its history of burning billions of dollars of investor capital to manufacture topline growth, Carvana has never generated sustainable profits or free cash flow. Even during the pandemic, when Carvana was virtually the only online option for scores of desperate car buyers willing to pay any price, the company failed to turn an annual profit. As the prospect of bankruptcy loomed, last year management began slashing costs, shrinking its operations and finessing working capital to try to generate positive free cash flow, and still failed. The company is pursuing a last-ditch attempt to sell markets on a new narrative, but ultimately, the business can’t escape the following reality: 1) whether a small local dealer or a tech-driven online platform, flipping used cars is a tough, capital-intensive business with lousy margins and, 2) any company can grow quickly and take share if run irresponsibly on costs, especially if capital markets are willing to foot the bill. Rather than representing true disruptive change, Carvana is a flawed player, armed with tools no better than the competition it seeks to disrupt and led by a management team which lacks seasoned automotive, operational experience. Carvana didn’t make money even when cars sold themselves, interest rates were low and used car prices were skyrocketing. Today, none of that is true anymore, and the company has no hope but to eventually restructure its massive debt load.

Carvana’s fundamental fate was sealed last May. In an epic blunder, Carvana management misread the sustainability of pandemic-induced industry conditions and issued billions in high yield debt to finance the purchase of additional capacity, just as macro and industry conditions began choking demand. All these conditions persist today with few signs of improvement. Against this backdrop, Carvana pivoted abruptly from all-out growth to finally focusing on profitability, but it’s too little, too late. Carvana’s aggressive cost cuts may succeed in slowing the rate of cash burn, but with over $700m in annual interest expense and capex, it simply cannot generate enough profit to stop the negative cash flow.

As the year progresses, cash and liquidity will dwindle further, and Carvana will be staring at over $250m in interest payments in the 4^th quarter alone, its seasonally slowest period. After repeated attempts to improve liquidity through a bond exchange failed, last week the company conveniently pre-announced “better than expected” 2Q EBITDA, not because of sustainable, fundamental improvement in its core business, but primarily due to large one-time loan sales – a move which reeks of pumping shares ahead of a potential equity offering.

Despite the stock’s fall from all-time highs, Carvana shares are worthless. Comparisons to tech/e-commerce platforms are nonsensical. Carvana should be valued like any other publicly traded auto retailer, and specifically one that is poorly capitalized and more cyclical due to a lack of diversification and subprime exposure. We view the equity as a zero and investing at current levels is a worse deal than buying a clunker from a slick used car salesman.

Read our full report here.

We are short shares of Uranium Energy Corporation, a “fast growing” $1.2 billion uranium miner that has indeed exhibited a blistering growth rate since its entry into the uranium business in 2005, but on the wrong metric – shares outstanding, the company’s best-selling product…

We are short shares of C3.ai (AI), a $4 billion market capitalization enterprise software company that has risen from the ashes of its busted IPO based on the misconception that its self-proclaimed “AI leadership” somehow positions it to benefit from Silicon Valley’s current…

We are short shares of AST SpaceMobile, a $2bn satellite company trying to sell the dream of connecting billions of people with mobile broadband directly to their phones from space, but without a credible ability to bring that dream to reality. A 2021 SPAC, AST features a satellite design that is destined to fail, unsurprising…