Special Situations, Macro, Long/Short Equity, asymmetric derivative inv.
Contributor Since 2013
My/our articles are not meant to provide or solicit the provision of investment advice and none of the content herein constitutes a recommendation that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person. The analysis in any or all articles is based on the author’s views as of the date thereof and may not be relied upon by third parties. You understand that an investment in any security is subject to a number of risks, and that discussions of any security in these articles will not contain a list or description of relevant risk factors. These articles also contain certain forward looking statements. Such statements are subject to a number of assumptions, risks and uncertainties which may cause actual results, performance or achievements to be materially different from future results, performance or achievements expressed or implied by the forward-looking statements and projections in these articles. You alone are solely responsible for determining whether any investment, security or strategy, or any other product or service, is appropriate or suitable for you based on your investment objectives and personal and financial situation.
Update on GetSwift:
On Monday evening, investors were given “hope” that there might actually be another side to the GetSwift narrative. Kuwait’s Kout Food Group (franchisee of Yum! Brands International) announced via Business Wire that GetSwift’s logistics platform was finally being deployed in its portfolio of companies encompassing the brands of Pizza Hut, Taco Bell, Burger King, and Kababji among others. This announcement was made by KFG, not GetSwift. KFG’s CEO was quoted,
“I can categorically state that not only do we now have a flexible and continually evolving platform that is best in class and fully supported by a dedicated, passionate and trustworthy partner in GSW management, we have [a] fully committed team to enhance its platform to offer unique solutions which brings in qualitative differentiation and technological advancement. We have recommended and suggested GSW solution to partners around the globe and this could be their preferred solution.”
The ASX quickly halted GetSwift’s stock on Tuesday morning in a request for more information as to why GetSwift did not submit an announcement itself. GetSwift replied that the Company did not believe the news to be material due to the early stage of the relationship and deployment. GetSwift was released from halt and the stock is once again trading. This announcement does, however, provide one very important item: validation. KFG is a large operator that publicly announced that not only is GetSwift their preferred and best solution, but that their global partners should use GSW as well. While this is not revenue, I view this as an enormous positive step towards revenue and a true reference account. Perhaps most notably, GetSwift has been able to successfully close this account in the midst of relentless headwinds in Australia.
It has been two years since I was introduced to GetSwift by Union Square Capital Advisors. At that point, the Company was said to be sitting on two “embargoed” accounts in addition to numerous small-scale deployments in select verticals and locations. I spoke with three specific clients (all of which were household names) who independently validated the technology, management, and their own specific integration. Revenue at that time was nonexistent and there was no clear proof that a deployment could be successful at scale. The Company had, however, created a potential path to scale by getting access inside several large organizations that included Yum! Brands International and NA Williams.
Fast forward several months and a financial tabloid out of Australia picked up a narrative that GetSwift had failed to announce that several small (and immaterial) contracts had been canceled and not announced to the market. The publication was also claiming that several (announced) larger-scale MSA’s were still in pilot with no guarantee of revenue. The stock collapsed from over A$4/share, where the Company raised A$75m. GetSwift is now facing a single class action and an ASIC (regulatory) civil case, both of which will not be heard in court until the summer of 2020. If we could rely on precedent, it could be argued that the Class Action will likely be settled long before heading to trial. The ASIC claim is unlikely to have a material impact on the Company’s balance sheet although there is a risk that the regulator pushes to reshuffle the leadership within the Company. The argument for the class action is inherently different. From my perspective, I would like to see the class action settled as soon as is practical. Ideally, this would be realized before year-end. I’m sure that if GetSwift were do this all over, things would be done differently. However, it is pointless to harp on the past. Instead, i’m looking for the opportunity that can be found in almost every “crisis.”
In 2018, GetSwift moved quickly to restructure their BOD, most notably with the appointment of Michael Fricklas. Fricklas was formerly General Council for Viacom and rumored to be the highest paid corporate lawyer in the United States. He was joined by two Australian directors, David Ryan and Belinda Gibson. All three of these directors resigned in early 2019 due to differences in the way the Company was engaging with their board. The Company stated that they were replacing their board with a focus on one thing: revenue. GetSwift suggested that the BOD had done its part to solidify a strong foundation of corporate governance. In reality, boards never define companies, but they do provide optical reassurance to investors that qualified minds are working on behalf of shareholders.
GetSwift has also built out their tech staff with the addition of Dennis Noto (formerly IBM) and several of his former colleagues. Dennis is a true “varsity player” and my interactions with him as of late have been very impressive. Dennis has significant enterprise experience and he appears to be a very well respected asset to the Company.
Revenue growth has only just started to move in the right direction with GetSwift reporting 50% Q/Q growth for calendar Q1 2019. The percentage increase is a “nice to have” but certainly very far away from the absolute figures that investors are looking for. For much of 2019, the stock has remained exceptionally depressed with the Company now trading at a valuation of roughly A$35m with A$70m in cash/cash equivalents. Many institutions have greatly reduced their exposures, while others have remained at the helm. A few other US names have established new positions as the current valuation provides optionality. For potential new investors, the weight of the class action and continued (substantial) quarterly legal burn have kept many on the sidelines. The current valuation is telling investors that the market believes the class action could consume half of the cash on hand. As someone who has opted out of the class action, I find this overly pessimistic. This is simply an opinion and should be weighted accordingly.
For the last 1-2 years, the narrative around GetSwift and its leaders has been dominated by the Australian press. GetSwift’s story has helped to sell newspapers. These newspapers have put pressure on regulators to act. Most importantly, regulators in Australia have been enduring years of intense criticism over various public missteps in the banking sector. For GetSwift, the timing couldn’t be more unfortunate. Wrong place, wrong time...in a market dominated by investments in hard assets and clear inexperience in SAAS companies. Interestingly, the Company is mainly based out of New York and Denver (United States). While this story has been front-page in Australia, the Company (and their past) is a complete unknown elsewhere, especially in the United States.
Moving forward, there are only 4 things that matter to me that I believe could serve as a catalyst for a potential 5-10x investment return from the current valuation. The first is a settlement of the class action for a sum that our lawyers believe to be “reasonable.” I would like to see the settlement sooner than later. A$5m today is far better than A$0 a year from now. I cannot define what “reasonable” is but I will know it when I see it. The second, third, and fourth items are revenue, revenue, and most importantly, revenue. This week’s announcement by Kout Food Group is a solid foot forward in achieving points 2-4. Achieving these 4 items has the potential to completely change the narrative and have the Australian press patting themselves on the back for driving change in GetSwift’s inner core.
Disclosure: I am/we are long GSWTF.
Additional disclosure: Long GSW:AU (onshore) and GSWTF (US Listing)