What's up with WATT, Pt II (or "What's making Energous' share price tumble?")

Yesterday I posted on the coverage Energous, the RF wireless power company, receive in the press and how tech journalism really is failing in its role to report on complex tech in a reasonable manner. Today, I'm going to be looking at another metric of performance that we rarely get to see with startups, and that's company valuation, so be warned this is lots of company financials coming up.

Normally a startup is valued by a large scale institutional investor and that determines how much stock the company gives up in return for the investment. It's a bit of black magic, and is related to the technology, IP, customers, team, engineering, but mostly whatever the investor thinks is right for the given cheque size they write and the percent they want. You, as a member of the public, have no idea what goes into this, it simply happens in the background and it's really not clear why they get the valuation they do. 

Things are different with Energous though - unlike almost any other startup they IPO'd early, before product or revenue, and so are a publicly traded company. That means their financials are, by law, available to the public, and as such their company valuation, or market cap, can be viewed at any time. If you assume that the market is rational then that share price, or market cap, is a clear indication of the value of the company. Now, the market can be irrational for long periods of time, particularly with companies with speculative products somewhere in the future, but in the end the rational world forces its way onto the share price, even if that takes years.

I've made it clear that I think that Energous is not as valuable as the market says - that is, I'm saying that in the short term, the market is irrational where Energous is concerned. I briefly wrote about this a few months ago, and I'll summarize here - some people benefit from wildly varying stock prices to buy low and sell high. If you can, legally, insinuate a large company like Apple will use theproducts, while never actually saying it, you can get people to buy the stock speculatively before each major Apple product announcement, then after the inevitable tumble when it's not announced it can be bought back cheap. Rinse, repeat. (Note it doesn't have to be the company itself, or insiders, doing this.)

Here's the stock price for Energous in June 2016. Notice the continual rise until late on the 13th June when it plummets? What could have caused that? Apple held their WWDC event that day, Tim Cook finished his talk at 2pm and there was no announcement of Energous in the iPhone. Dig into this yourself with the NASDAQ tool.

Energous Share Price June 2016

Zooming out to look at the stock price over the last year, it's been a pretty bumpy ride with +/- 30% swings pretty common.

Energous Stock Price over the last 12 months

What's really interesting though is the stock price for Energous over the last 2 months. It could be described as being in 'free fall'. You can see from the chart below that stock has fallen from around $16 to around $10, over a 35% drop. The volume indicators in the bottom show red bars - it's mostly selling.

Energous Share Price over the last 2 months

Most of that happened in the last 2 weeks - let's take a look at the last few days. You can see below that on the 16th the share price was held at exactly $11.00 for the full day, before giving up and it dropping further.

Energous Share Price for the last 5 days

Now, I'll make quite clear at this point that I am not a financial analyst, and I'm putting this out there more to raise questions than to provide answers - so if you know investing well, please jump in and make comment. I'm very interested to hear where I may be wrong on all this!

For the last 50 days the average number of shares sold has been near 300,000, but in the last few days it's been nearer 900,000. This is unlikely to be your average employee selling their stock, these are pretty sizeable share amounts as the total number of outstanding shares is around 22,000,000 - so around 4% of the company every day changing hands. Maybe a vesting period for a large number of employees has hit and they are also allowed to sell, and they're taking their winnings - though not a good sign for the company when the insiders sell as much as they can!

I'm interested in what happened on the 16th, and what held the price at $11.00 for the day. Energous is a very heavily shorted stock - that is, many people betting that the price will go down, not up. Someone perhaps covering their position and making sure they don't get bitten heavily on the downside? Whatever is happening, it's not a 'natural' stock market event.

What's causing this sell-off? I'm actually not sure, as there have been no major events that I am aware of in Energous' world that would drive this. They announced in their earnings call that they'd got more investment from Dialog, that this meant they had $28 million on hand at the start of July, and were trying to drop their burn rate from $15m a quarter to closer to $10m, indicating they can make it to very early next year without further investment. They still claim to have many products in the pipeline with FCC approval underway, of which I remain highly skeptical, however there's nothing here that's different than before.

All I can see having happened is that a few leaks have indicated that the iPhone 8 will not be using Energous, but rather Apple have developed their own version of Qi wireless charging. Should Apple announce this at their WWDC next month, it pretty much puts the last nail in the coffin of anyone thinking Energous will be built into Apple products. Unlike last year, there's not the ability to stoke speculation that 'this will be it' with the next iPhone release. Are people selling off ahead of a potential share-price cliff edge? If anyone has any thoughts, or a better explanation, please do share!

What does this mean for the market cap of the company? A month ago Energous was valued (market cap) at $350m, today it's $225m, over a 35% drop. That's pretty horrendous, and any regular company would have shareholders screaming. Maybe this is just another dip that some will view as a buying opportunity and the Energous roller coaster will carry on, or maybe it's the last dive before iPhone 8 crushes the possibility of Apple revenue and the FCC kills the idea of approval of the large scale transmitters. We'll see.

For the staff, this can be a morale-killer - you see not only the prospect for the product you've been working on diminish, but the $100,000 you thought your stock options would get you is now $65,000. Maybe you'll be getting a Honda not a Tesla? Competition for talented staff is high, and it makes it all the easier for other companies to grab your best employees, or raises your salary/equity costs in keeping them.

This might have implications for other wireless power companies too. uBeam are in the midst of a fundraising round, and from rumors I have heard have been pushing for a monster valuation. Given the iPhone 8 likely making it clear that neither uBeam nor Energous will ever be in an Apple product, and that the market cap of a company that's positioned itself as well as Energous is at $225m and falling like a rock, could uBeam's desired valuation during fundraising be taking another hit?

Update: Monday 21st 2017
The day after I wrote this post was another major down day for Energous, dropping nearly 13% in one day to $8.95, putting the market cap at around $197 million. Volume was increased, around 1,300,000 shares traded, around 6% of shares issued.

Energous Share Price on August 21st 2017

Who is selling this stock? It has to be large scale insiders or institutions, unfortunately it seems the Nasdaq tool only updates institutional positions every quarter, so unless someone can point me to where you can find that information on a daily basis, we'll have to wait and see who is doing the trading here.

SeekingAlpha published another article on Energous, this time claiming that the company may have $4 billion a year revenue within 2 years, based on statements from the CEO Steve Rizzone. This is quite fantastical, with no new evidence presented and assumptions made that are 'generous' to say the least. The article ends with a quote from the CEO:

An opportunity to engage with a company that has tremendous upside at a very very reasonable market cap. If you think about it: if we have no real competition, if our total market opportunity is measured in the billions of devices, if we’re on the cusp of getting regulatory approval - a hurdle which many said would be impossible to get - if we’ve got our first orders for silicon and we’ve got multiple strategic partners that are firmly behind the company, what’s a company like that worth that really starts to execute?

There are five explicit "if"s in that passage and at least a couple more implicit, yet ends with asking the reader to imagine a huge upside, and appealing to their greed. A marvelously constructed paragraph that promises nothing yet leaves the reader with the impression that huge success is imminent. This guy is a great salesman!

The comments to the article are amusing - one commenter, Keubiko, lists nine such statements by Rizzone over the last couple of years, each of the claims of which have failed to materialize. For example:

"we anticipate revenues in the low seven digits in calendar 2015 increasing in 2016 to the mid-seven digit million and reaching monthly cash flow breakeven in the third quarter of 2017." - Rizzone, August 10, 2015

We're now entering the last month of third quarter 2017, breakeven is stated to be (as early as) Q4 2018 here, so over a year away and maintaining Time to Carrot. It's amazing how major product release and breakeven is always just far enough out you don't have to prove product is ready, but not so far that people can't be persuaded to invest because it's just so close...

If you believe I'm wrong about Energous, now is your chance to buy in at a low price, and make me look like a fool. In the short term you may even be right, it's a stock that's had wild swings before - but at some point it won't come back up again. This smells to me like we might be there. Let's keep watching over the next few days.

Further Update on 21st August
This section below was a question I asked about financials that was answered in the comments. Turns out that the automatic importation of numbers from the SEC went wrong, leading to weirdness in the financing tables. I'm leaving it below just as a reminder to myself to always use primary data sources whenever possible.

Finally, and this is definitively a question, I've been trying to work out what this little nugget in Energous' financials is. If you go to Seeking Alpha, and look a the quarterly cash flows, you see this:

Energous Financial Data from Seeking Alpha

The "Miscellaneous Funds" line is interesting as it jumps from $6.1 billion in the red to $1.33 billion in the black in a quarter. What on earth is this? Typo or mishandled data in Seeking Alpha? Or some odd accounting? These numbers are multiple of the company's highest market cap, not chage you find down the back of the sofa. Anyone with information or thoughts, please let me know!

Update: A commentator points out these numbers are due to an issue in automatically reading in the data from the source, which is the SEC and can be found here. Basically, those numbers should be zero, so nothing to see here. He makes a point I should have known - always use primary sources for your data where possible!

A Unicorn I Can Believe In

I've spent a fair amount of this blog trying to pull back the curtain on startups and VC funding, and have covered a few wannabe unicorns in that time. In startup-speak, a unicorn is a company that has a valuation of greater than $1 billion, such as Uber, AirBnB, or Pinterest. I've always found this an amusing name, as I'm originally from Scotland and in the same way that the bald eagle is the national animal of the USA, the unicorn is the national animal of my home country. Yes, you read that correctly, a mythical creature is the national animal of Scotland. (It beat out Haggis McHaggisface in an online poll, what can you do?)

I was back home last month, and in both Glasgow (where I did my under- and post-graduate degrees) and Dundee (where I grew up) took the chance to photograph the statues of unicorns in the city centers.

Glasgow Unicorn

Close-Up, Glasgow Unicorn

Dundee Unicorn, St. Mary's Church

As a little bit of history on how this came to be - it was originally added to the Scottish coat of arms in the 12th century by William I, as a symbol of strength and power as well as healing. Following the union of crowns of Scotland and England, King James swapped one of the unicorns for a lion, the national animal of England. Eventually this became the coat of arms for the United Kingdom - with it usually shown as the one on the left, but if shown in Scotland as the one on the right (in the same way the national US flag is always on the left or higher when flown with a state flag). It's such a cool coat of arms, those smart Canadians use it too.

United Kingdom Coat of Arms

Try and take a look at these if you're ever in those cities. And in Glasgow, don't miss the statue of Wellington in front of the Museum of Modern Art. You can't miss it, he's always got a traffic cone on his head. Yes, seriously, no matter how often it gets taken down, it goes right back up again in hours. And it's not too easy, I tried it, and they've stuck tar on the plinth so you're going to be pretty obvious as the culprit!

Wellington in Glasgow

Wellington in Glasgow, MOMA in the Background

Many other statues and fantastic buildings and monuments in both cities, and Edinburgh is in a league of its own. Thanks to Brexit exchange rate is awesome right now. Go visit. :)

What's up with WATT, Pt I (or "What's Wrong with Tech Journalism?")

It's been a while since I covered Energous (whose ticker symbol is WATT. Other posts are here, here, here, here, here, here, and here). They're one of the RF based wireless charging companies, and probably the most famous for their bold claims - first claiming 12 devices at up to 10 Watts, then up to 1 Watt at 4.5 meters, while remaining safe. These numbers were so high as to raise many questions as to practicality, both with respect to physics and regulatory aspects. Still, the company stood by its claims, held an IPO, and was floated on the stock exchange. Since then it has raised millions more, and has been burning through cash at the rate of around $15 million per quarter, while repeatedly delaying products and releases in what some call a 'time to carrot' manner.

To me, it was yet another example of the inability of the tech press to truly and effectively evaluate an advanced technology, and repeatedly fail to ask even the most simple and obvious questions such as "What's the efficiency?". David Pogue was one such reporter - in 2015 he sat down with the company CEO and was shown a demo of a charge light activating on a phone, while the CEO told him of how amazing it was and the reported gushed about how it was the most amazing demo ever. No, it's not the uBeam demo from a few months ago despite the similarities - two years on and still the press can't learn. Pogue finishes his 2015 article with this statement:

But I’ve seen it first-hand, and I’m convinced: This technology is real.

Wow, that's awesome, a tech journalist has fully evaluated a piece of complex technology without even cracking the case, speaking to the engineers, or the benefit of a decade or two of experience in the field. I want to believe so let's pour millions more dollars in!

Yes, that's all funny. Except millions of dollars more were poured in, thanks in part to glowing coverage like Pogue's. Fortunately, Pogue at least thought to go back a couple of years later and take a look at Energous, and published an article last month (new link here) where he talks to Energous again with a slightly more skeptical eye. I say slightly more skeptical because he still allows himself to be bamboozled by the company and still fails to ask the basic questions he should - it's frustrating as 5 minutes with a decent engineer would give him exactly what he needs to ask. Let's take a few of these failings in turn:

Consumer Product Logistics

First of all he asks why they haven't shipped the product when it's near a year after the original claim. Or wait, spend 10 minutes searching and find that in 2014 the delivery date was 2015, so it's now two years behind and the delivery is constantly moving out, around 18 months ahead. The excuse is they have gone from one to three products (near, mid, far range) and that has shifted the timeframe, but that products will be for sale late Q3/early Q4 this year. That means about three months from when that interview was given, and they're not certain when a consumer device will be in the shops.

Let me be clear about this - consumer devices that are going to be for sale are ready many, many, months prior to launch. The supply chain issues to get them out mean that, unless you are selling tiny quantities, you're ready >6 months prior. Basically - if you don't know exactly how many of your devices will be on the shelves, on exactly what dates, in exactly what location, you're likely at least 6 months out, more likely a year. A few simple questions like "How many devices will be on the shelves?", "Who are the major retailers committed to stocking them?". "What is your MSRP?", "What are your projected sales volumes?", and "Can I see the retail packaging?" and it should become really clear, really quickly that the company actually has something, or is just selling vaporware.

These questions are so simple, so generic, yet an experienced journalist doesn't know to ask them.

Regulatory

Next they discuss the FCC and regulation, and Energous make it clear that they've been working to create a new testing protocol with the FCC. Awesome. So: 

Who were you working with at the FCC? Can I call them? 

or

The FCC is a public agency and they're only working with one vendor to create a standard that will apply to an entire industry? Is that normal? Let's ask the FCC that too.

Were the FCC called? Anyone there prepared to make comment? What about someone expert in getting FCC regulatory compliance for consumer products to evaluate that statement? (uBeam also made a statement about being universal standard, then withdrew it after scrutiny)

Then the company claims that they can do this with the FCC since the spot size they focus to is 'tiny', localized just as it would be on a charging pad. Fantastic. So:

What's the spot size, in centimeters? What is 'tiny'?

or

You're working at 5.8GHz and so are looking at a multi-centimeter wavelength and an array of emitters only a few elements in size. Even under ideal conditions it's hard to focus, how do you make it "tiny"?

or even

You've stated that if you detect people or animals in the beam path you shut it off. Does that imply it's not safe?

As you can guess, there was no follow up, the tech journalist once again simply accepted the statements of the company at face value and failed to question them. Ridiculously simple questions too. My first post on Energous covers the spot size question and explains it in detail - maybe ask them why those numbers or physics are wrong? It's like the recent coverage of uBeam when the company said they'd have safety evaluated by third party experts and no-one asked "Who would that be? Can we talk to them?"

How hard are any of these questions? And if they don't answer, or dodge, you know something is up. But that would be uncomfortable, and would put access as a tame journalist at-risk, so best not to.

The Charging Pad

Next, they look at the Watt-Up Mini, the charging pad that Energous claim is their first product that has FCC approval - I've pointed out before, it has FCC approval because it puts out so little power it's of no practical use at all. Energous are at pains to point out advantages such as charging the devices at any angle, or compatibility with future long range Energous products, but once again there's no follow up with questions like:

Who are your major competitors to this charging pad? How does the Mini compare to them in charge rate, efficiency, and cost?

If it's a major revenue possibility for them, and they diverted from their core mission because it was so compelling, they should have a clear business justification. It's a simple question. How can you not ask this?!?!?

The Big Devices

Then we get to the full scale medium and large transmitters, and here's where the really interesting part happens. Remember the claims of 15 feet and multiple Watts? Gone, replaced by a 'very, very small amount of power', '15 feet from the transmitter, that’d be hard for us to increase the battery. We’d just keep it from going down.' and  'It’s not charging super fast, like you would be plugged in the wall, but a small amount of energy, trickle charging it.' Just like uBeam in their recent demo, they've suddenly gone from claiming huge charge rates like 'faster than a wire' down to 'trickle charge'.

Let me put this into an analogy the non-technical people can understand. Ever met some guy who boasts he can bench-press 1100 lbs and run the 100 meters in 9.5 seconds, and you know he's full-of-shit because those numbers are just beyond the world-records (1075 lbs and 9.58 seconds) and it would be amazing if he could do one of them? And then when you finally, finally, get him to the gym and track and find he can maybe do 150lbs and then falls over wheezing at 50 meters then staggers over the line in 30 seconds? That's what's happening here - yet everyone claps their hands in the tech example about their amazing progress rather than calling him out for being a blowhard. For anyone with a vague understanding of the situation, or physics, we're sitting wondering if we're the ones taking crazy pills.

Back to the article - it's as if these wireless power companies are all reading from the same playbook - and why not, it's not like tech journalists are going to call them on it. Here's a stunning line:

During my return visit, Energous never demonstrated its transmitters charging a phone — only low-power gadgets.

Let me be clear - a company that raised tens of millions of dollars on claims of huge range, charge rates, and short delivery times, is admitting that their original claims were greatly exaggerated and people need to scale back their expectations. More importantly, they don't show a phone being charged, about the only market that's actually worth addressing for a company with a billion dollar valuation requirement. Of course this led the journalist to ask "How this will impact the share price?", "How they could have got it so wrong?", "How are forward looking financial plans are clearly heavily impacted by the drastic reduction in sales this must imply?". Ha - no, looks like there was just a nod of the head as they took down what was told to them.

The Journalism

There was journalism in this piece though - good investigation, skepticism, and a revelation - sadly it didn't involve Energous itself, but on an internet commentator. The piece starts with the claim that a single person in the whole world was bothered by the original 2015 article - which is bizarre as there were many who questioned Energous, but that would ruin a good story. Todor Mitev appears to be a short seller - a person making money from a stock that goes down, rather than up - and has been following and commenting on Energous for some time. While the short selling does give someone an incentive to drive a price down, did the journalist even pause for a moment and say "Maybe he saw that the stock was overpriced due to the hype from journalists, is just highlighting the reality, and in this capitalistic world making some money from it too?" Apparently, a person like Todor with a financial incentive from short selling can't be trusted, but the three top execs of Energous who take home nearly $5 million a year between them from a company with no product or sizeable revenue are motivated by the angels. Yep, great job there.

There's some suspicion that Todor writes under pseudonyms on forums such as Seeking Alpha, and has been accused there of being the poster Richard X Roe. I've followed Roe's posts, which contain a lot of detailed and accurate physics, and I have had a few short exchanges with him. If his physics was wrong, then it could easily be called out, but in a similar way to how my articles on uBeam are criticized but never attacked for the maths or physics, it's his character that is questioned. Nicely done in re-iterating that line.

An important question to the author - if you asked the questions I've outlined above to Energous, would that impact your access in future, and put at risk your potential earnings as a journalist?

We're all motivated by money. All of us, it's just sometimes it's more obvious than others - but it doesn't necessarily impact the validity of what's being said. To be clear here, I have zero financial interest, long or short, in the fortunes of Energous. I don't even make money from this blog. Looks like I'm the only one with clean-hands - does this mean I get listened to more than any other player?

The Close-Up and Cop-Out

The article ends with some quite frustrating quotes. First, the CEO makes this statement:

We’re on the cusp here. We think that this will all be in the rearview mirror in the next six months or so.

So by the end of 2017 it's all going to be awesome? That's an easy one to follow up on. I'm sure we'll have a year end article doing exactly that. <cough> But it's one of the close-out lines that irritated me most of all. Our intrepid journalist writes:

I never did manage to find out exactly how realistic through-the-air charging is, how close it is to appearing in our phones and watches. I’m not sure anybody really knows.

Of course you didn't find out if it's possible, you failed to ask any serious questions, or even the easy questions. You didn't even try. The closest he gets is a quote from an MIT prof which was:

“I don’t like saying ‘never’ or ‘can’t work,'” he replied, “but I would be skeptical. My guess is that this sort of system, with phased-array antennae, might work, but it is probably not very efficient.”

which if you understand engineering speak is saying "Nope. Not going to work in any vaguely efficient or practical manner." Let me translate again to the bench-press/100 meter analogy "Yes, it's just maybe possible someone can lift that much, or run the 100 meters in that time, even one would be incredible, but two together even more unlikely. I'm just not saying "No" since maybe sometime in the next 100 years one person in a few tens of billions may be able to." 

But then he says "I'm not sure anybody really knows."

To David Pogue, the writer of this article I can say this - Really? THEN WHAT WAS THE POINT OF YOUR ARTICLE? 

You. Failed.

More than that, you failed when there are many people out there who show the ways in which what they claim can be disproved - how many did you speak to? This blog has several posts that are examples of this and refute many of the points made by Energous not with opinion but easily verifiable maths and physics.

David - I know you think you were being skeptical yet fair to Energous, but really, you just acted as a mouthpiece for them to do their PR again. This time instead of pumping up the stock early on, it's part of the slow letdown. You've been suckered. Again.

Two years ago you told us all it was real. Now you don't know. Why should we listen to you on this, other than you were chosen by Energous?

Last month on Seeking Alpha, I gave my opinion on the viability of Energous, and discussed it with an individual investor. He admitted he had no business, investing, or technical skills by which to judge the company, but it was clear he had been motivated by the publicity the company had generated, which your articles have been a small part of. Understand that your articles actually affect the finances of individuals. Your words have real consequences.

What you meant to say by "I'm not sure anybody really knows." is "It's beyond my capability to understand but rather than admitting so, I wrote the article anyway while thinking to be 'even handed'"

Tech journalism is actually important, and you turned an article about the vast overstatement of capability of a (then) $350 million market cap company, into a PR piece for them. Rather than do the hard job of asking a few basic questions that would highlight the reality of the situation, but endanger your future access, you did a 'gotcha' on an individual who uses a pseudonym and might make some cash when pointing out the realities of the technology. Easy path every time.

I get it, this stuff is actually really complex and hard to understand, beyond most people's capability - but there are some great tech journalists out there, that match skepticism with fair questioning and coverage, and manage to get the complexities explained to a lay audience. To every tech journalist out there, please, pretty please, with sugar on top - be part of the solution, not part of the problem.

Next in Part II - what's going on with Energous' share price?