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Whitney Tilson

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  • Plug Power: Unprofitable Past, Poor Fundamentals, And A Best-Case DCF Value Of $2-$2.50/Share [View article]
    Well done Kerrisdale. This stock is such a joke -- a horse race between this and UNIS for the biggest promotion of the past year. Both are going under $1 -- it's just a question of when.
    Apr 2 02:41 PM | 8 Likes Like |Link to Comment
  • Unilife: CFO Resignation And Usurious Financing Imply Substantial Downside [View article]
    Excellent work Kerrisdale. This is one of the most obvious promotions (and shorts) I've seen in my 15+ year career. To those of you silly enough to be long this: you've been warned.
    Mar 21 05:38 PM | 5 Likes Like |Link to Comment
  • Unilife Finally Secures Its Financial Situation [View article]
    This is among the highest-cost financings I've ever seen in my career, which shows how utterly desperate UNIS is. Orbimed is simply making the bet that UNIS can continue to sell shares over time to fund the onerous debt payments owed to them -- not an unreasonable bet from their perspective, but terribly dilutive to UNIS shareholders (not that they seem to give a hoot; or perhaps it's that they don't understand what's really happening).
    Mar 18 09:31 PM | 1 Like Like |Link to Comment
  • IBM: An Island Of Value In A Sea Of Overpriced Stocks [View article]
    I guess this is what makes markets, but I'm short IBM because: a) I think the business is likely slowly dying and; b) I’m certain the company is engaging in all sorts of earnings shenanigans (albeit perhaps legal ones). For more on the latter, see Jeff Mathew's brilliant two articles, posted here: http://bit.ly/1nIv4iP and here: http://bit.ly/1nIv4z6

    PS--I love Buffett, go to every Berkshire meeting, and own a ton of Berkshire stock -- but I think he's got this one wrong.
    Mar 11 09:54 PM | 3 Likes Like |Link to Comment
  • The Beginning Of The End Of The 3D Printing Bubble [View article]
    To those who wonder why I published this after the stock's fallen quite a bit, I have two answers:

    1) I think it's as good a short now as it was at its peak a month ago (which is why I shorted more yesterday) because now the momentum of the stock is broken and investor and Wall St. analyst confidence in management is shattered, yet the stock's still absurdly overvalued; and

    2) I've been pounding the table on this bubble for quite some time. I was early, but nailed the top. For example, this is what I posted on the ValueInvestorsClub DDD message board on 1/4/14, with the stock at $96.42:

    DDD now sports a $9.9 billion market cap and trades at 21x sales.

    Think about the implications of this. I used to think that it's mathematically impossible for a company with a $10B market cap and more than 10x sales (much less 21x) to ever be a good investment, but a few companies have proved me wrong. They all have three characteristics:

    1) They serve rapidly growing global markets;

    2) They have winner-take-all (or at least most) business models; and

    3) They have extremely "light" business models -- meaning they can scale globally with very little capital required.

    The stocks of such companies can actually be cheap – even with big market caps and P/S multipes. Examples of stocks that have done well subsequent to periods at which they were trading above 10x TTM sales and had market caps in excess of $10B include Microsoft and Yahoo in the late 1990s (and Yahoo again in 2003-04), Amgen and Biogen prior to around 2003-05, Adobe in 2000, Google, priceline.com and Infosys in the few years after their IPOs, Qualcomm from 2001-2006, Salesforce.com at various points, as well as LinkedIn, Facebook, Baidu, Tencent, Gilead Sciences for their entire existences. (Incidentally, Netflix, which I still own, has all of these characteristics I believe – and trades at “only” 5.2x revenues; it was 1x revenues when I pitched it at the Value Investing Congress 15 months – and a 7-bagger – ago.)

    Note that every one of these 15 companies falls into two categories:

    1) 11 are software/internet companies that don’t deliver a physical product – the lightest business models imaginable; or

    2) Four have intellectual property (three have patented drugs) that allows them to earn supersize profits (gross margin in the 70-90% range and net margin of 20-30%).
    So now let’s apply this framework to 3D Systems. Re. #1, I’ll grant that 3D printing is a rapidly growing global market, but the company utterly fails characteristics #2 and #3. It’s a highly competitive market with no winner-take-all characteristics (though each company does have some IP) and DDD doesn’t have a particularly light business model (certainly not when compared to the software and internet companies I cite above). (Incidentally, the same analysis holds for Telsa, which I’m also short – it trades at 10.8x sales and is an auto manufacturer!)

    In the past 20 years, DDD’s gross margin has only crept above 50% in the last two years, and its net margin has actually fallen from its peak of 15.4% in 2011 to 11.0% in 2012 to 9.5% in the last 12 months. This is what investors are playing 21x sales for?!

    Mark my words: this will end very badly. I think DDD is maybe worth 2x revenues, so my price target is around $10 – down nearly 90% from here.
    Feb 6 06:11 PM | 3 Likes Like |Link to Comment
  • The Beginning Of The End Of The 3D Printing Bubble [View article]
    I just realized what DDD reminds me of: Tyco! Such wonderful parallels – both have real underlying businesses, but are in highly competitive industries, so how does management concoct a growth story to jack the stock through the roof? Easy! Just acquire every company in sight, get very creative with acquisition accounting, and then work closely with Wall Street’s finest to pump it up.

    I think there’s a good chance DDD ends up the same way: a smoldering crater.
    Feb 6 06:05 PM | 1 Like Like |Link to Comment
  • The Beginning Of The End Of The 3D Printing Bubble [View article]
    I was at the Consumer Electronics Show in Las Vegas last month and spent a couple of hours in the 3D printing area of the convention hall, which had maybe 15-20 companies exhibiting. DDD’s booth was the largest and it was filled with all sorts of printers, ranging from the new Cube (which it says will retail for under $1,000) on up. The printers were all furiously at work – but doing little more than producing little plastic trinkets.

    I’m a real gadget fiend so I was really expecting to find myself lusting after one of these machines, but was sorely disappointed. I understand 3D printing’s usefulness for industrial uses like producing prototypes – a business that’s been around for many, many years – but utterly fail to see any chance of widespread consumer adoption like. Yet the hype and valuations in the sector presume that 3D printing is going to be as revolutionary as the iPhone or iPad. What a crock!

    My other big takeaway was the fierce competition – more than a dozen companies were showing off 3D printers that appeared very similar to those of DDD’s. Heck, there was even a low-end, generic Asian manufacturer with a printer for $499. In short, this looks like a business that is already becoming highly commoditized – which likely explains why DDD’s margins have declined for each of the past two years – and are projected to decline further this year. DDD said it’s because it’s making wise investments to tap the incredible growth opportunity, but I think it’s because its products aren’t selling well and are facing stiff competition.

    It was during CES that DDD announced it appointed will.i.am as its Chief Creative Officer. At that time (with the stock near its all-time high), I wrote in an email blast to 3,000+ people:

    This ranks up there with the silliest things I’ve ever seen. When (not if) this stock collapses, we’ll look at this as a sure sign of the top… I challenge you to read the press release and keep a straight face. Here’s the beginning:

    "3D Systems (NYSE:DDD) today announced that will.i.am, global entertainer, entrepreneur and philanthropist, joined 3DS as its Chief Creative Officer. In this leadership role, will.i.am will inspire, shape and drive all of 3DS' initiatives to mainstream the use of 3D printing through major collaborations with creative brand partners, innovative global campaigns and educational grand challenges designed to grow the popularity of 3D printing.

    The addition of will.i.am to the 3DS team brings tremendous talent, vision and influence, and underscores the company's commitment to democratize 3D printing. 3DS plans to leverage will.i.am's international creative industry network to immediately extend its reach into select high-end fashion accessories houses, leading entertainment and life style brands and key corporate sponsored educational and sustainability initiatives."

    Note that will.i.am was an early 3D visionary, having featured a 3D Printer in his Dec. 2012 video for the song "Scream and Shout" with Britney Spears. Alas, the printer used in the video was a MakerBot Replicator (MakerBot was purchased by DDD competitor, Stratasys, last June): http://bit.ly/1eYe8OB

    This deal reminds me of Blackberry’s deal with Alicia Keys, announced a year ago when BBRY was at $16.60. Here’s an excerpt from an article about that debacle:

    "When Alicia Keys was first named global creative director at BlackBerry on Jan. 30, 2013, much derision was made at her expense for tweeting from an iPhone just days before the announcement – and maybe even once again a few days after, in an apparent hack scandal.

    But Thursday’s (Jan. 2) news that Keys was ending her one-year partnership with the brand comes at a time when BlackBerry is the only party with egg on its face. The company is capping off a tumultuous 2013 that saw the company seeking, and ultimately rejecting, a $4.7 billion takeover bid from Fairfax Financial Holdings, a house-cleaning of its top executives, including CEO Thorsten Heins, chief marketing officer Frank Boulben and chief operating officer Kristian Tear, among others, and the failed launch of the BlackBerry Z10, a would-be competitor to the iPhone.

    “BlackBerry and Alicia Keys have completed our year-long collaboration,” the company said in a statement Thursday. “We thank Alicia for her many contributions including providing creative direction for the BlackBerry Keep Moving Project which attracted more than 40 million visits, advocating for women in STEM and launching the BlackBerry Scholars Program. We have enjoyed the opportunity to work with such an incredibly talented and passionate individual.”

    In the first few months of 2013, Keys was singled out as the latest in a trend of celebrities – particularly musicians – taking on “creative director”-like roles at major brands like Diet Coke (Taylor Swift), MasterCard and Bud Light Platinum (Justin Timberlake), Intel and Coca-Cola (Will.i.am), Monster Audio (Keys’ husband Swizz Beatz), and just last month, PepsiCo’s Aquafina Flavor Splash (Austin Mahone). But just how meaningful were these partnerships, which were carefully worded so as not to seem like glorified endorsements?"
    Feb 6 12:33 PM | 2 Likes Like |Link to Comment
  • The Beginning Of The End Of The 3D Printing Bubble [View article]
    I think this comment pretty well captures the nature of those who are long DDD: "This article made me almost choke on my food! A PE of 17 nowadays is miles away of a bubble"

    DDD is almost entirely owned by retail investors who have been lured into a gigantic promotion engineered by management and Wall St. "analysts" -- who are laughing all the way to the bank. Yet the retail investors fall for it because they don't know the difference between a stock trading at 17x REVENUES vs. one trading at 17x after-tax EARNINGS.

    It saddens me to see people have their hard-earned savings incinerated in scams like this, which is why I'm trying to warn them -- and instead I mostly get flamed. No good deed goes unpunished!
    Feb 6 10:48 AM | 13 Likes Like |Link to Comment
  • Opko Health: The Placebo Effect [View article]
    A couple folks have asked why Lakewood's 13F shows a long position in OPK if they're short the stock. This is a common misunderstanding. Allow me to explain what I'm quite certain is really going on (though I have no direct knowledge of this particular situation). With heavily shorted stocks like OPK, it can be very difficult to get the borrow, so if your broker finds you some borrow, it makes sense to take more than you need and then buy the stock to offset this.

    So, for example, if you wanted to be short 100,000 shares of OPK, you'd get the borrow on 150,000 shares and short them -- and also buy 50,000 shares. Then, if you later want to increase the size of your short position, you don't need to get more borrow (which might be impossible to get at that time) -- you simply sell some of the 50,000 shares you own. Easy!

    There's nothing illegal or even unusual about this.

    The confusion arises because funds, in their 13F filings (which all funds with over $100 million in assets must file), are only required to disclose their LONG positions -- thus, Lakewood's filing shows a long position in OPK when in reality they're short it.
    Dec 12 01:00 AM | 10 Likes Like |Link to Comment
  • Why There's More Downside To Come For InterOil [View article]
    One of the smartest short sellers I know posts under the handle "hawkeye901" on ValueInvestorsClub.com. He posted his short thesis on IOC on Aug. 14, 2012 when the stock was at $85 (it's one of the four write-ups I link to in my article above) and he just posted an update on the VIC message board, which I reproduce here (note that the formatting of his financial model is lost when I copy and paste it here, so I saved it as a pdf and posted it here: http://bit.ly/1d6Jy5L):

    hawkeye901, 12/10/13 09:49 AM, Current Thoughts on IOC

    I wanted to summarize some additional thoughts on IOC following Friday’s call and additional discussions on VIC over the past few days.

    1) I think a reasonable estimate of fair value is less than $35 per share. I think the risk/reward on the short is arguably as good as ever as the stock is still more or less flat on the year, yet the upside case is almost entirely off the table and a significant downside case remains. At 5.4 Tcf, I estimate the value is $35 per share but I think the odds are much more likely that there is less gas than that (ie, there is not a normal distribution around $35 per share). The odds are still reasonably high that there will not be enough gas to justify a project, which could mean the stock is worth less than $10 per share. Conversely, the odds that there are 9 Tcf (which would make the stock worth in ~$70 per share) are extremely low in my view.

    2) I agree with Katana that the minorities should receive more value than was in Friday’s post and it does also appear that the company is implying there will be no taxes on any of the payments from Total (but I also agree with Katana’s other point that tax should be owed at some point by US shareholders so to completely ignore any taxes seems aggressive).

    3) In terms of thinking about IOC’s valuation going forward, while IOC did get a deal done, Total did not accept IOC’s old GLJ report and will instead be embarking on a new program of resource certification, with a very high probability (in my view) that the same historical geological concerns will ultimately result in no LNG project and no contingent resource payments to IOC. So putting together a range of resource estimates of 3.5-10Tcf and assuming these have equal probabilities strikes me as unrealistic.

    4) I would also highlight two other issues that I think is worth considering: 1) the mechanics of buying out the minorities and 2) potential claims on IOC’s initial resource payment in Q1 2014 (including repayment of IOC’s recent $250mm credit facility and potential need to repay Pacific Rubiales’ $96mm funding advance liability). These items could result in much of the initial Total payment not actually accruing to IOC.

    5) The big question mark in my view is how the minorities are dealt with. Given that IOC can't come up with the cash to buy them out (and determining valuation will be tricky without some contingent value payment concept), I imagine the most likely outcome is that IOC issues them stock instead. My guess is the minorities get something in the range of 20%+ of the company, which would also result in a lot of stock coming to market.

    6) In terms of liquidity, recall that the company entered into a $250mm capex facility in November that is “payable in full” upon any sale/disposal of the company’s interest in the Elk/Antelope fields (presumably this includes a partial sale), but we don’t know how much is currently drawn. In addition, IOC’s July 2012 farm-in agreement with Pacific Rubiales (see filing on SEDAR/Bloomberg dated 2/28/13) would seem to indicate that there is a repayment clause “in IOC Share Value or in cash, at InterOil’s option” if the company’s interest in PRL15 becomes “30% or less” (unclear if this is gross or net). We also don’t know how the minorities are going to be treated, so there is a chance that they actually get almost 25% of the initial cash coming in the door as part of some cash + stock deal. These cash drains, plus the company’s quarterly burn, would indicate that it is unlikely IOC will have a “cash-rich” balance sheet going forward.

    7) Based on the PSA and the discussions on taxes/minorities, I have updated my preliminary analysis from Friday morning. I now think the range of outcomes here is likely in the range of low $20s to $50 per share, with a decent probability that the ultimate value is well below $20 per share (ie, no LNG project) and a fairly low probability that something in the $70 per share range is realized. In a scenario where Total walks away and the refinery/Triceratops aren’t worth as much as I have been using, you could be looking at ~$10 per share. In addition, based on the Total press release, it is clear that they are trying to focus people on the 5.4Tcf scenario, not these upside cases from IOC. We can all assign our own probabilities to these scenarios but my weighted average valuation results in less than $35 per share (more than 40% down from the current share price).
    Dec 10 10:57 AM | 2 Likes Like |Link to Comment
  • An Open Letter To The Board And Management Of K12 [View article]
    I think K12 will follow a similar trajectory as the for-profit colleges -- which all fell 60-80% peak to trough.
    Nov 4 09:34 PM | Likes Like |Link to Comment
  • An Open Letter To The Board And Management Of K12 [View article]
    Platonicbomb: I detail why I haven't covered my short here: http://seekingalpha.co...

    RyanJoe555: I have indeed engaged in a long dialogue with the company -- mostly CEO Ron Packard -- about how it can better serve students. My views are reflected in this open letter.

    I think K12 is serving tens of thousands of students who aren't engaging, learning, or succeeding in any way, and therefore the company needs to shrink its enrollment by at least 30% to get back on track (based on the example I cited of the Colorado Virtual Academy; for more details, see page 105 of my presentation, posted at: http://bit.ly/1fezR7b).

    An enrollment decline would likely cause the stock to fall further, so it's a win-win as far as I'm concerned.

    The fact that I'm still short the stock does indeed present an obvious conflict, which is why I disclose my position up front in anything I write or say about K12. But I'd argue that my conflict is less than Packard and Davis's conflict in growing at any cost -- they have FAR more at stake financially and reputationally in K12's stock going up than I have in it going down (it's a mere 1.8% position for me currently). I discuss my views on my conflict of interest further here: http://bit.ly/1fezSbk

    Rest assured that my advice to the company would be exactly the same even if I had covered my short.
    Nov 4 10:34 AM | 2 Likes Like |Link to Comment
  • Observations From My Trip To China [View article]
    It just struck me as I read these 83 comments that NOT ONE PERSON took issue with my characterization with southern Europe in general and Spain in particular...
    Nov 2 10:47 PM | Likes Like |Link to Comment
  • Observations From My Trip To China [View article]
    Thank you for your comments everyone. Part of the reason I took the time to write down and publish my observations was to learn from others -- and I am!

    China is indeed an authoritarian country -- it irritated to me to no end that Google, Facebook, Twitter, YouTube, Blogger, and WhatsApp are all blocked (thank goodness Skype worked!), as are the NY Times and Bloomberg (because they published articles documenting how China's rulers are stealing literally BILLIONS of dollars). But these are fixable problems -- someone just has to make a decision and flip a switch.

    Bigger problems like intellectual property theft (reflecting the more general problem of lack of rule of law) and pollution will take longer to fix -- but I think the trends are going in the right direction.

    As for China's economy and doing business there, the country reminds me of America in, say, the 1880s. It's the wild west for sure, so be careful. I have yet to go long any Chinese stock and think they are some good shorts. But I don't think China is going to blow up like Dubai did.
    Nov 1 05:04 PM | 8 Likes Like |Link to Comment
  • An Analysis Of K12 And Why It Is My Largest Short Position [View article]
    I'm glad some of you made some money alongside me in the past few weeks. I posted my latest thoughts on the stock today: http://bit.ly/17oJF8h
    - Whitney
    Oct 9 09:09 PM | 2 Likes Like |Link to Comment
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