BATON ROUGE, La., Jan. 16, 2020 /PRNewswire/ -- Prescience Point
Capital Management ("Prescience Point"), a private investment
manager that focuses on deep investigations of public companies,
today published a critical research report supporting its short
position in shares of Medallia, Inc. (NYSE: MDLA), a $5.5 billion customer experience software company
that went public in July 2019.
After a months-long investigation that included a deep forensic
analysis of the company's financial statements, Prescience Point
values shares at $14.12, or roughly
55% lower than current trading levels. In fact, SEC documents show
Medallia's board of directors (with inputs from management and an
independent third-party valuation firm) valued its common stock at
only ~$6.50 per share as recently as
Jan. 2019.
Medallia's shares currently trade at over 13x revenue,
reflecting an impossible reality and the feverish hysteria that has
surrounded recent tech IPOs.
Despite being a "unicorn," Medallia has flown relatively under
the radar as a public company and avoided much of the scrutiny
experienced by some of its counterparts. As a result, its new
management team, with the help of its IPO underwriters, has been
able to spin a fantastical story about a business with accelerating
revenue growth in a huge untapped market.
Although Medallia has a near two-decade operating history, it
took advantage of provisions in the JOBS Act that allowed it to
only report two years of historical financial statements. In doing
so, it was much easier for management and the underwriters to spin
an out-of-context growth story to unsuspecting investors.
Indeed, our investigation reveals revenue growth has
meaningfully decelerated since FY 2015, and FY 2021 guidance
(excluding M&A) implies organic revenue growth will be below
20% for the first time in potentially a decade. What's more, while
it pitched an accelerating growth story during its IPO roadshow,
Medallia simultaneously amended the Risk Factor disclosures in its
S-1 Registration Statement to include language that warned
subscription revenue growth may slow.
Medallia also claims its Total Addressable Market (TAM) is
$68 billion, which assumes every
company globally with over $150
million in annual revenue will purchase its customer
experience software at the same level as current customers. These
assumptions are unrealistic and based on our analysis the actual
TAM is less than half the size.
Insiders have already unloaded massive stakes at prices well
below current levels. For example, (1) the founders sold 1.6
million shares in Oct. 2018 at
~6.50/share and another tranche of 1.8 million shares into the IPO
and (2) the current CTO sold ~10% of his stake in Dec. 2019.
As the IPO share-lock up just expired, we believe more shareholders
will be looking to cash out.
"We believe Medallia has been stretching the truth about the
size of the overall market and the sustainability of its revenue
growth," said Eiad Asbahi, Founder
and Portfolio Manager of Prescience Point. "With 108 million shares
coming off lock-up, Medallia faces the inevitable reality of its
stock price converging with fundamental value."
Click here to download Prescience Point's full detailed report
on Medallia.
Prescience Point has a short position in Medallia and stands to
benefit if its share price falls.
About Prescience Point Capital Management
Prescience Point Capital Management is a private investment manager
that employs forensic investigative techniques to unearth
significant mispricings in global markets. The firm specializes in
extensive investigations of difficult-to-analyze public companies
in order to uncover significant elements of the business that have
been overlooked or ignored by others. Their publicly-available
research focuses on exposing corporate wrongdoing and has been
followed by resignations of auditors, CEOs and CFOs, earnings
restatements, SEC investigations and stock delistings.
Prescience Point manages private funds on behalf of clients and
principals and takes positions both long and short in support of
their research. The firm invests across a broad set of equities
that they believe have abnormally large disparities between what
their underlying businesses are intrinsically worth and what their
securities sell for.
The firm was founded by investor Eiad
Asbahi in 2009 and is headquartered in Baton Rouge, LA. Prescience Point Capital
Management is a registered investment advisor with the State of Louisiana a member of the Financial
Industry Regulatory Authority, CRD number 152721. For updates
follow Prescience Point on Twitter @PresciencePoint
Disclaimer
THIS RELEASE EXPRESSES SOLELY PRESCIENCE POINT CAPITAL MANAGEMENT'S
OPINIONS. Use Prescience Point's research opinions at your own
risk. This is not investment advice nor should it be construed as
such. You should do your own research and due diligence before
making any investment decisions with respect to the securities
covered herein. Forward-looking statement and projections are
inherently susceptible to uncertainty and involve many risks (known
and unknown) that could cause actual results to differ materially
from expected results. You should assume we have a short interest
in Medallia stock and therefore stand to realize significant gains
in the event that the price of such instrument declines. Please
refer to our full disclaimer located on the last page of our
research report (linked herein).
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SOURCE Prescience Point Capital Management