Prescience Point Capital Management Issues Negative Research Report on Medallia, Inc. (NYSE: MDLA)
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
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).
SOURCE Prescience Point Capital Management