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Monday, November 13, 2017

What's up with WATT, Pt III (or "Is this thing still going?")

It's been nearly three months since I posted on Energous, the RF wireless power company that I've been quite skeptical of since the beginning of this blog. I wrote a two parter, the first covering the inadequate 'reporting' by the tech press on the company, and the second looking at the financials and share price of the company. As there hasn't been much in the way of press outreach by Energous lately, I wanted to do an update on the business side of the company as there have been some ups and downs.

If you look at the chart below, you can see Energous continues its highly volatile course, as it was around $16 a share in July, down at around $9 by the time of my articles, then a rapid rise and fall up to $13 and back down to $11 (see if you can tell the exact time the Apple announce the wireless charging in the iPhone was not Energous...), a slow rise to $14, then a fall to under $7, and so far a bounce back to about $9.40. If you timed your buys and sells well, you could have made quite some return on that stock.

Why the volatility in the stock price? Well, apart from the run up to Apple's WWDC when there was speculation the  iPhone wireless charging would be RF based (not rational speculation, it was obvious at the time it wasn't), and subsequent drop, there's no event or announcement that drives anything other than a drop in value of the company. The Apple September announcement removed any rational hope of the company getting into iPhones, which is really the only market that can give the company the 9+ figure valuation it needs, and should have sent the stock price even lower. Strangely, though, those who had been pumping the stock based on Apple being the "Tier One" customer that's repeatedly mentioned by Energous suddenly started saying that didn't matter, and it was all about FCC approval this year - basically everything rides on hopes, not facts. This is a *belief* stock. Think of it like a religion - if you show evidence the religion is valid belief in it goes up, and if you show evidence that it's a human-concocted fiction then belief in it also goes up. Take a look at Stocktwits on WATT and read the comments, and come and tell me that's not a bunch of true believers.

The downward slide continued until it hit $6.91, when the company released its 10-Q on quarterly results and had the public earnings call. In that call the company missed its earnings target, talked about a smart textile supplier as its big customer 'win', and said they'd sent some test results to the FCC - and so of course the share price leapt up over the next couple of days to $9.39. Wait, what?

Yes, the stock price went up despite no real positive or significant news, and an earnings miss. What happened? Well, take a look at this Stocktwits tweet.

Now read the conference call transcript, and point out to me where the CEO "promised FCC"? If you read it, he's very careful to give you a positive view but absolutely not ever commit even vaguely. There is always a caveat in his statements like: 

"Regarding FCC certification of the first power-at-a-distance transmitter... The FCC reviewed the certification document as a novel or new application of previous testing methods. Because the certification will set a precedent, the FCC is being very thorough in their review to ensure that not only this certification, but any future certifications, comply fully with all the current regulatory requirements. As a result, the agency requested some additional tests, explanations and clarifications..."

Even when he's a little more committed with statements like "Our test data, once again, shows that our device complies with current regulatory limits." there's no statement as to what the tests are, or what regulation they are checking against. Like the last "FCC Certified" MiniWattUp product, it may pass the tests, but be of no use to anyone the power is set so low.

And here's where you should remember the phrase "If you're sitting at the poker table and you don't know who the mark is, it's you."This investor read what he wanted to read, not what was actually said. And that forms the basis of this irrational belief and hope the stock will go higher. What happens in this type of situation? Well you can expect continuous 'bounces' in stock price as the marks are fleeced again and again, until even the greatest zealot surrenders (or runs out of cash) and it all collapses.

You can read into the professional's views of the company by looking at what the amount of shorted stock is - that is, how many people are betting that the stock will go down, not up. Taking a look here and here, it's around 30%, which is high and not showing a lot of confidence in the company.

But what about the company executives? They must have faith in the company! Of course they do, that's why in the last 6 months every single time there's been an inside trade by the top four executives involving actual money, it's been to sell. Nearly $1.4 million dollars of sold stock between them. Why would you be selling your stock when you knew the company was going to be worth billions more in the next few years? Taking some money off the table isn't a bad idea for executives, but overall this does not seem like a company where the executives are in it for the long haul. (The "purchase" points you see there appear to be options, not purchases, it looks like no money was paid).

So what happens next? Well, there seems to be no end of people willing to gamble against reality, as well as those willing to encourage their delusions to sell them something. I expect there will be a few more "bounces" of the stock price, and the FCC approval either never forthcoming or we then find that the device approved puts out next to no power and is practically useless (see their WattUp Mini as a reference), and eventually the stock price will collapse and they'll be valued at a small multiple of their revenue from consulting services and a few licensed patents.

That is assuming, however, they can keep going. With a lowered burn rate of around $12m a quarter, and around $21m cash liquid, they've got until about March 18 before bills get hard to pay. IOnterestingly, in their 10Q they say they expect to be good for another year, so they either will cut costs or need another cash influx from somewhere. Who is going to do that? Their distributor Dialog? They did it once before so perhaps again, but at some point the owners there have to watch what's happening and wonder.

So, the summary is the same as before. Reality continues to be deferred while various parties rake in the cash. Energous have no product sales, negligible revenue, vague statements about FCC approval, and their executives continue to be richly compensated. Perhaps my next summary will return a different answer?

1 comment:

  1. Like you, I found the Energous comments about submitting test results to the FCC convoluting. Either they made up their own standards and were rejected or just rejected. The FCC is not a negotiation but a pass or fail. So if you submit a test you know is not going to pass why did they do it? I believe they did this in their self interest to both placate potential customers and or stock holders to claim progress and in the future to deflect failure and place blame on the FCC.