|Shares Out. (in M):||42||P/E||0||0|
|Market Cap (in $M):||1,997||P/FCF||0||0|
|Net Debt (in $M):||200||EBIT||0||0|
|TEV (in $M):||1,796||TEV/EBIT||0||0|
|Borrow Cost:||Tight 15-50% cost|
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Blink Charging (“BLNK”)– The Bell Does Not Always Ring at the Top of a Bubble
There are so many crazily overvalued securities in this Covid/Fed/DDTG fueled run, it is hard to know what to make of it and what it says about capital formation and allocation. I know that some of my dicier leveraged equity longs have doubled and tripled in recent weeks. Given the risks and division that come from a change in administration, record low to negative interest rates globally, and a stock market that almost never goes down that now seems like a good time to find some short ideas. But what companies to short? The ideal candidate would be in a hot sector but be the Pets.com vs. Amazon or closer to home the Lehman Brothers vs. Goldman, Sachs. The Company would have a long history of not making money, an opaque business model, a promotional CEO with no direct background in the industry, board turnover of the few truly independent directors, and multiple and recurring lawsuits over a variety of issues. The company would be a serial diluter of equity, insiders would also be selling large blocks of stock. Oh, and the market capitalization would be large and the float liquid. To top it off, the Company’s product would get very bad customer reviews. In a Jan 19th, 2021 Wall Street Journal (WSJ) article, “When Investors Forget Fundamentals, the Market is Broken”, WSJ writes “Stocks that fit popular themes such as solar and electric vehicles are already wildly overvalued, while signs of optimism about in the wider market.”
Several secular “high-growth” industries are littered with failed first-movers:
E-commerce / Internet: Aol.com, Pets.com, Urban Fetch, Webvan, Ask Jeeves, Myspace, Etoys.
Solar: Solyndra, Abound Solar, A123 Systems, Ener1, Range Fuels, Azure Dynamics, Evergreen Solar, etc…
Telecom: 360Networks, Global Crossing, Flag Telecom, NorthPoint, Covad, PSINet, Rhythms, McLeod, XO Communications, Intermedia, ICG Communications, Focal Communications, Teligent.
VIC members, we have found just such a candidate for your consideration: Blink Charging Co. (“BLNK”). BLNK operates in the very hot electric vehicle (“EV”) charging segment. The Biden administration has promised a massive and surely taxpayer subsidized increase in the number of charging stations and the sector is rocking on the back of that and TSLA’s trillion-dollar valuation. One can hear the bulls saying if BLNK can just be 1% of TSLA then… Unfortunately, just as in the early days of the internet for every Google there were many more MySpaces. The world is littered with e commerce flameouts. For every Tesla there is a Solyndra. EV valuations are now reminiscent of the tech/telco bubble of the late 90s and the solar frenzy of 2008. BLNK has been in business for 10 years, but you would think it was a start-up based on the anemic revenue and large operating losses. Their presentations haven’t really changed much over the past few years, long on industry hype and short on unit economics of the various business models. What we can say is that operating expense is going up at a faster rate than revenue growth which implies that the Company’s investments are not paying off.
Blink’s Chairman and CEO, Michael Farkas, is a former stockbroker. Not an EV specialist or engineer, or former DE Shaw veteran like Amazon’s Jeff Bezos. Here is a snapshot of all the firms Farkas was slinging stocks at:
Not many blue-chip names here.
Farkas is the only insider with any material stock and he and the Company have been selling. From near penny stock status a few years ago, BLNK now sports a $50 price tag and a $2 billion enterprise value. TravelCenters of America (“TA”) while not a true comp., runs trucker fueling and rest stations. it is not too far a stretch from servicing trucks to EVs. The business is not in a hot sector but it’s not going away any time soon. They have roughly the same enterprise value as BLNK with almost $500mm of pre Covid EBITDA or 4x. ChargePoint (“SBE”) is the industry leader with 70% market share. SBE is the SPAC they are merging into and post deal will have a roughly $12 billion valuation. BLNK is clearly drafting its valuation off SBE.
However, the similarities between the two companies end there. SBE runs a fully networked group of stations (BLNK stations are mostly standalone) and has $200mm in revenue and a path to profitability. SBE has investors like BMW, Siemens, Daimler and blue-chip VCs. Starbucks is a customer (they give away an hour of free ChargePoint charging). By contrast, BLNK has Michael Farkas. If SBE traded at BLNK’s 500x run rate revenue valuation, it would be a $100 billion+ company. BLNK has 8% market share and under $4mm of run rate revenue. But the most important distinction between SBE and BLNK is that SBE is at its heart a software business, making money selling services like peak grid power back to the utility and acting as a middleman between its customers and the utilities. SBE helps utilities like Pacific, Gas and Electric load manage by uploading or throttling back charge speeds during peak load periods. BLNK is essentially selling electricity a la a utility and in the long run that business will be dominated by the low ROI infrastructure owning utilities, not BLNK. BLNK takes pride in owning most of its chargers. There are not too many asset heavy technology companies these days with all the obsolescence that implies.
BLNK has an unfocused and unprofitable business model, offering all things to its customers, whereas its larger peers have more focused strategies…
We believe the timing is now to short. You can see the signs of momentum fatigue. The Company just raised over $232mm with Farkas personally pocketing $22mm. After jumping 25% on the deal pricing, the stock appears stalled while investors churn most of the float daily. There are no long-term holders left in the name, just Robin Hood day traders flipping. From 2017 to now the shares outstanding have gone from 3.1mm to over 40mm. The share count has doubled in the last 12 months alone. BLNK may not be able to make money in the EV market but reflecting the stockbroker background of the CEO, they are good at selling stock.
The Company has almost no sell side coverage. I encourage VIC members to listen to last week’s Needham conference. After about an hour not one question about how they plan to make money, what the unit economics are, or whether more share sales are coming (rest assured on that count). We would love to tell you the unit economics are BS, but you cannot parse them. What you can see despite serial acquisitions, is that BLNK has almost no revenue (I thought the $900k in the most recent quarter was a typo until I checked). Many of BLNK charging stations are in Covid impacted areas like hotels and restaurants. While the equity markets are open for now, the debt markets are closed to a company with losses this large and in little in tangible assets. The Company talks about investments and acquisitions without stating what the ROI or even target markets. Most of the chargers they own/operate are slower chargers. The fast ones are more popular and more expensive – will they replace the old ones? Who knows? Is the price of rent for the charging stations going up as more competitors enter? Nary a word.
The board is tiny and controlled by Farkas. Look at the Bloomberg board history to see the independents cycle off. One wonders why? The 10-K has a litany of lawsuits that would make you think this was a fortune 500 company engaged in opioid manufacturing. The nature of the suits changes from year to year, but they are always there, often focusing on self-dealing and partnerships gone bad. Here is a sample from the recent 10-Q:
In Jul-17, BLNK was sued by Jack Zwick for breach of contract and unjust enrichment for failure to pay invoices of $53,069 for services rendered.
In Mar-20, BLNK was sued by its former COO, James Christodoulou, for alleged retaliatory termination and slander. In Oct-20, litigation between Christodoulou and BLNK was settled for $400,000.
In Aug-20, a securities class action lawsuit (Bush vs Blink Charging Co.) was filed in Southern District Florida against BLNK, Chairman Farkas, and CFO Michael Rama. Bush complaint assets that the defendants made materially false or misleading statements about the number, accessibility and functionality of the charging stations in the Blink Network and Blink’s partnerships and expansions with third parties.
In Sep-20, another purported securities class action lawsuit (Vittoria vs Blink Charging) was filed in the Southern District of Florida against the same defendants.
In Sep-20, a shareholder derivative lawsuit (Klein vs Farkas, the Board of Directors and CFO Rama) was filed in Miami-Dade County Circuit Court. The Klein lawsuit asserts that the Director defendants breached fiduciary duties and corporate waste for unjust enrichment.
The self-dealing appears fully baked into the model. Rather than focus on the US and make that model prove out, BLNK has JVs in many vacation spots around the world from the Dominican Republic to Greece. Farkas has ties to Israel and of course that is a market for BLNK too. The company is not focused on making one business model work.
Since January of 2018, BLNK’s cumulative revenues are merely $9.1 million and gross profit eked out $2.2 million, yet total executive compensation was $23.4 million. BLNK also has generated cumulative cash from operations of ($25million), which was funded with $34.1 million of equity offerings. The 3-year average quarter-over-quarter revenue growth rate was a scant 11%, which certainly does not warrant an eye-popping valuation multiple. Over the past 3 years, BLNK has only received $145,000 in warranty revenues but has paid $950,000 in warranty & repair costs. Cumulative capital expenditures were only $1.3 million, which may explain the negative customer reviews on Yelp:
BLNK management can’t even be bothered to have friends and family write nice things online to offset the wall of negativity.
When a heavily hyped company hits the $1-2 billion EV range, and increases the float 10x, it becomes much harder to sustain the valuation. Farkas is worth $300mm on paper in BLNK stock, which is most of his net worth. He will keep selling. The 5mm new shares still need to be absorbed. Even a modest Russell 2000 correction could also send the stock back to $10 where it was a few months ago. The market cap and valuation make it virtually impossible for a strategic to buy it. The recent offering gives about $5 a share in rapidly burning cash – you can bet on pay to the CEO and others to jump accordingly. The biggest risk is that BLNK buys real businesses with the cash from offerings. However, the Company has no history of M & A success. Still, that issuance should crater the stock as new shares hit the market. Our target is below the cash on the BS, eventually zero has we believe they will burn through the cash. As one EV insider said to us, “we just don’t think about BLNK, we don’t think there is anything there worth having or interesting.”
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