There is a new breed of financial investor – or dis-investor, perhaps – that targets publicly traded companies with allegedly incriminating reports, while taking short seller positions on the company.
This new breed of short-seller investment firm is almost always an anonymous group without known ties to funds or investors.
Upright Analytics is unique in the space, though. Owner and standout short seller Lauren Balik is an actual person who puts her name behind her assertions.
Most of these other short-seller firms, such as Culper or an online account that goes by “The Buddha,” are fronts for hedge funds, Balik said.
Whether they work in the dark of night or the light of day, these short sellers are targeting the same thing.
“I’m always looking for when the narrative is going to fall apart,” Balik told AdExchanger. “Whenever the narrative falls apart, or can fall apart, is where I’m looking to strike.”
Tech companies often receive very light scrutiny when it comes to their bottom line and in-the-weeds financials, if they demonstrate growth. “This isn’t like Kraft Heinz,” she said. Those big companies go through the wringer with financial reviews.
The short-seller space
Hedge funds are interested in shadowy content and research firms because they can be a way to get info on companies. Those short-seller accounts or firms infiltrate closed engineering and entrepreneurs’ forums online to discover nonpublic info about SaaS pricing changes, employee numbers and any other detail they can about a potential short sale or investment.
For Balik, any report or short position with Upright she’s written has come from her own money and research, although she has done consulting and research work for hedge funds.
Regardless, the trend of short-seller funds with hybrid media and content arms has not been kind to ad tech and mar tech.
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In 2017, Gotham City Research leveled rough allegations against Criteo, claiming more than half of its impressions went to bots and fake or low-quality sites, as well as the ad agency conglomerate MDC Partners. Last week, another short-seller firm, called Culper Research, published a scathing report on Zeta Global. That followed a series of reports by Balik regarding her own short position on Zeta beginning last month.
“I’m always looking at things in the digital payment space and ad tech space,” Balik said.
And the timing of these short-seller strikes is not coincidental.
When Criteo came under fire, it was in late 2017, about six months before GDPR enforcement began in May 2018.
The Zeta shorts are also being timed for next February, when Zeta must reconcile its revenues by breaking out its political income. This was an order by the SEC due to Zeta’s previous lumpy revenue growth around political elections.
One of Balik’s key rationales for shorting Zeta is that it has misrepresented growth this year. Rather than report political and advocacy revenue, as it has previously categorized revenue, Zeta this year has been reporting only political candidate spend, which doesn’t count the super PACs, advocacy groups, partiers themselves and other big spenders.
Balik and others have timed their activist short positions for next February, when they believe investors will lower expectations, if more than they expect of Zeta’s revenue this year actually disappears with the election cycle.
What’s next for Upright?
Only about one in 10 of Balik’s short positions ever turn into full-fledged reports, she said.
“By the time I’m writing about it, I’m already in deep,” she said.
But that means there’s always more to short. Especially since Balik is waiting to pounce on some expected IPOs.
Klarna, the Swedish buy-now-pay-later company, is poised to IPO – and to draw a short-seller campaign. Balik said Klarna is “a total scam” and “a totally messed up company.”
The market and other more conventional equity analysts seem high on AppLovin right now, she said. “I think that’s a bunch of baloney. We’ll see what happens with them.”
Being a bit shady or overhyped may not be enough to draw Balik into a short sale. There also must be an opportunity to knock major market cap off the business, thus profiting significantly from the short sale, which earns more the further a company drops. She profits on 75% of her short positions, she said.
“I bet specifically on companies really taking it,” she said, as in taking a beating.
“That’s where my differentiator is.”
