FINANCE TODAY | ISSUE NO.8
COMPANY OVERVIEW
Founded in 2016, Facedrive is a Canadian “people-and-planet-first” tech business ecosystem that offers ride-sharing, food delivery, health solutions, and an e-commerce platform (Sanjeevan, 2019). The environmental proposition extends beyond being able to get a ride in an eco-friendly car, as Facedrive has demonstrated its commitment to environmental sustainability by partnering with Forest Ontario. A sophisticated AI software calculates the amount of carbon output that will be generated by each ride and donates a corresponding amount of money to Forest Ontario. These donations are used to plant trees, which will neutralize the carbon footprint of every Facedrive trip. Over 3000 trees were planted in 2019. Facedrive’s most substantial endeavour has been in the Transportation-as-a-Service (TaaS) industry, more commonly known as ride-sharing. The TaaS industry has largely disrupted traditional transportation methods and is growing at an exponential rate. Facedrive currently operates in 10 different Canadian cities, with a fleet of over 11 000 drivers and 65 000 registered users (Rankin, 2020). Increases in ridership have also been reported, with a growth in total new user registrations of 75% in the last half of 2019 (Rankin, 2020). Facedrive also offers other services in the food delivery, healthcare, and e-commerce sectors, all of which operate based on environmental sustainability.
FACEDRIVE FINANCIALS
The year 2020 has been remarkable for Facedrive so far, despite the COVID-19 pandemic. The company now has an approximately $1.4 billion CAD valuation. Facedrive reported revenues of $387,901 CAD in the first quarter of 2020, which was an approximately 10-fold increase YoY(Kulkarani, 2020). In comparison, revenues from all of 2019 totalled $599,104 CAD (Kulkarani, 2020). However, Facedrive continues to be a profit-losing business, with a net income of -$8426 reported over the last 12 months (Rankin, 2020). Where Facedrive makes up for lacking profits is in the stock market, with an incredible 3,000% increase in the stock price over the last 12 months (Kulkarani, 2020). The stock is currently trading between $19 and $20 CAD per share, with an all-time high of $24.92 CAD per share. While many investors have optimistically put their trust in Facedrive’s ability to continue growing, others believe the worst is yet to come.
This graph shows how rapidly the Facedrive stock price has been rising.
THE DOWNSIDE
At the beginning of July, forensic financial research company, Hindenburg Research, released a scathing report where they labelled Facdrive as, “failing,” and as having a “hollow core business” (Guo, et. al, 2020). Hindenburg states that Facedrive’s ride-sharing business is fundamentally flawed, and attaining sales growth would cost significant amounts of cash, which the company does not have. The TaaS industry is extremely price-competitive, with major competitors Lyft and Uber incurring significant annual cash losses even to maintain their market share. Although Facedrive’s revenues have increased so far during the COVID-19 pandemic, Hindenburg estimates that this will not last. COVID-19 has already massively interrupted the ride-sharing industry, with analysts expecting that both Lyft and Uber will make 40% fewer sales than were estimated at the start of the year (Guo, et. al, 2020). Hindenburg also exposed a troubling USD 8.2 million payment Facedrive made to a covered entity in the British Virgin Islands, for a month of “marketing research”. Facedrive is said to have struck a deal with a marketing and consulting company called Medtronics Online Solutions Ltd., however, Hindenburg found only 3 Google search results for the entity outside of the Facedrive announcement (Guo, et. al, 2020). The final blow dealt by the Hindenburg article was when it revealed that Facedrive CEO Sayanthan Navaratnam was previously responsible for a public company that lost 99% of its stock value and is no longer listed on the New York Stock Exchange.
This graph shows the closing stock prices of the company, Creative Vistas, which was previously run by current Facedrive CEO. The graph illustrates that the stock has not been worth more than $0.10 CAD for almost eight years, and has been trading at below $0.02 CAD per share for a long time.
OVERALL
Facedrive has the potential to expand dramatically and become a viable competitor for Uber and Lyft. However, there are numerous other factors at play that will ultimately determine the fate of this Canadian underdog. Facedrive may well prove to be an excellent investment opportunity for daring investors, while more conservative investors shy away from the company’s uncertain future. This example highlights the importance of thoroughly researching companies, including their history, the executive team, and their financial statements in order to make a rational investment.
References
Kulkarani, V. (2020, August 03). Facedrive: Why This 3,000% Gainer Stock Scored Big in July. Retrieved August 20, 2020, from https://www.fool.ca/2020/08/03/facedrive-why-this-3000-gainer-stock-scored-big-in-july/
Rankin, T. (2020, January 22). Facedrive Announces Continued Growth in 2019. Retrieved August 20, 2020, from https://www.businesswire.com/news/home/20200122005393/en/Facedrive-Announces-Continued-Growth-2019
Sanjeevan. (2019). About Us. Retrieved August 20, 2020, from https://www.facedrive.com/about-us
A., Guo, D., Richard, R., Floder, M., Floder, J., Kennedy, J., & Evangelist, G. (2020, July 23). Facedrive: A $1.4b ESG Stock Promotion with a Hollow Core Business, Flailing Business Pivots and Multi-Million Dollar Payments to an Opaque BVI Entity; 95% Downside. Retrieved August 19, 2020, from https://hindenburgresearch.com/facedrive/