The combined stock was worth some $42,218,204 as of Tuesday’s closing price.
DraftKings represents the 17th-largest holding of the Ark Innovation ETF and the 19th-largest component of the Ark Next Generation Internet ETF.
DraftKings’ stock came under pressure on Tuesday after the noted short-seller Hindenburg Research released a report detailing what they describe as “black market operations” at the fantasy sports and sports betting operator.
While the stock fell as much as 12% on Tuesday, it recovered to end the day down just 4%. Now, DraftKings has received some much-needed analyst support.
Thomas Allen, the managing director of equity research at Morgan Stanley, reiterated his “overweight” rating and $58 price target on shares of DraftKings after the short-seller report.
The analyst argued that “unregulated” market exposure is common for international online gaming/sports betting companies and that DraftKings’ partner, SBTech, has exposure that is more in the “grey market” area.
“We are Overweight DKNG on the thesis that its customer acquisition advantage through its legacy DFS business will drive outsized US B2C sports betting revenue and, in turn, profitability compared to consensus,” Allen said.
Jefferies analyst David Katz also maintained his “buy” rating and $75 price target on DraftKings, arguing that the SBTech acquisition was mainly meant to help the company own and developing the right betting technology, not gain international revenue.
DraftKings plunged as much as 12% Tuesday on allegations by a short seller of illegal activity.
A report from Hindenburg Research published Tuesday morning, which unveiled the firm’s short position in the online sports betting company, claimed DraftKings had “systematically skirted the law” via two Bulgarian subsidiaries. Meanwhile, insiders made use of market froth to sell more than $1.4 billion in DraftKings shares, Hindenburg alleged.
In a statement, DraftKings downplayed the findings.
“This report is written by someone who is short on DraftKings stock with an incentive to drive down the share price,” the company told Yahoo Finance. “We conducted a thorough review of [one of the Bulgarian subsidiary’s] business practices and we were comfortable with the findings.”
Released ahead of market open, the report sent DraftKings shares sliding, bottoming out at $44.65 a share versus a previous close of $50.62. But by 11 a.m. New York time, the stock had recovered around two-thirds of the initial drop, and had remained stable as of this writing.
Since the Supreme Court legalized sports betting nationwide in 2018, DraftKings has leaned on partnerships with high-profile brands, like the NFL and NBA, to stand out in a crowded, sometimes opaque market.
The firm went public through a SPAC in 2020, combining with one of the Bulgarian subsidiaries, called SBTech, that Hindenburg accuses of criminal conduct.
The DraftKings drop continues a rough stretch for the stock, which has fallen 28% since mid-March.
Shares of the company were trading 4.65% lower at $48.26 as of 3:29 p.m. ET on Tuesday.
Short seller Hindenburg Research revealed its latest short position against DraftKings in a report on Tuesday.
Hindenburg said that one of DraftKings’ SPAC merger partners, Bulgaria-based gaming technology company SBTech, “brings exposure to extensive dealings in black-market gaming, money laundering, and organized crime.”
The short seller claimed that, according to their estimates based on SEC filings, “supporting documents,” and conversations with former employees, roughly 50% of SBTech’s revenue comes from markets where gambling is banned.
DraftKings did not immediately respond to Insider’s request for comment about the report.
Hindenburg said the company’s illicit customer relationships were shuffled into a newly formed “distributor” entity called BTi/CoreTech when DraftKings went public via a SPAC merger with Diamond Eagle Acquisition Corp. in April 2020.
The short seller has been a frequent critic of popular startups, many of which have gone public via SPAC. Previous targets include electric vehicle makers Nikola and Lordstown Motors, as well as Chamath Palihapitiya-backed Clover Health.
Hindenburg also noted that DraftKings insiders have dumped over $1.4 billion in stock since the company went public, and SBTech’s founder personally sold around $568 million in shares.
Finally, the short seller argued DraftKings’ business model of aggressively spending cash to acquire customers that may or may not be loyal to the platform could be a risk moving forward.
DraftKings stock traded down 7.80% as of 9:47 a.m. ET after news of the short-seller report broke.
Electric vehicle startup Lordstown Motors has been paying salespeople to secure pre-orders of its battery-powered truck prototype for at least five years – a practice that is outside the bounds of most startups without a sellable product – a little-noticed lawsuit from 2017 reveals.
In the suit, a former employee accused Workhorse Group, which Lordstown spun out of in 2019, of failing to pay him commissions he earned by logging over 8,000 pre-orders for the Endurance pickup truck now being offered by Lordstown. A recent report by Hindenburg Research noted the suit, but Insider is the first outlet to report its details and its implications both for Lordstown and the host of startups racing to meet growing demand for EVs.
Commissioning pre-orders is not illegal, but it should raise a major red flag for investors, said Gartner analyst Michael Ramsey.
While Lordstown’s practice appears unique in the EV startup world, experts warn that no matter how they’re collected, pre-orders and reservations aren’t great tools for predicting which young automakers will prosper. Because they’re typically non-binding, they don’t necessarily indicate what level of demand a vehicle will generate when it enters production. A startup’s success is better determined by its technology and talent than by a metric that hinges more on interest than intent.
Lordstown’s pre-order list ‘obviously does not indicate real demand’
Even with the electric vehicle market starting to grow, deep-pocketed investors are crucial to any startup. It takes billions of dollars to launch an automaker. The industry’s history is littered with failures, and most of today’s startups will likely flounder before their products hit the market, according to risk consulting firm Guidehouse.
To attract capital, many fledgling automakers use pre-order figures as a proxy for the demand their future vehicles will command. Tesla in particular has a long history of doing this. The problem is that these orders represent a consumer’s interest in actually buying the vehicle once it reaches the market – not their commitment to do so.
The fact that Lordstown paid commissions for bringing in these orders further undermines the figures’ credibility, Ramsey said. “It obviously does not indicate real demand,” he told Insider.
Lordstown Motors has been commissioning pre-orders for years
The idea for Lordstown Motors originated at Workhorse Group. In 2019, Workhorse CEO Steve Burns left the startup. He bought the patent for its electric pickup, along with thousands of pre-orders for it, and made it the basis for a new company, Lordstown.
Today, Lordstown boasts more than 100,000 pre-orders for the pickup. That’s impressive when compared to those for similar EV startups like Lucid Motors and Fisker, which have about 8,000 and 14,000 pre-orders, respectively.
The 2017 lawsuit was filed against Workhorse by its former director of fleet sales, Jeffrey Esfeld. When he was hired in 2016, Esfeld said, he was tasked with securing up to 10,000 pre-orders per year. In just over a year, he logged more than 8,000 pre-orders, according to the court document. That number alone would account for over 8% of Lordstown’s current pre-orders to date. A Lordstown spokesperson would not confirm whether signatures gathered by Workhorse Group in 2016 are part of that total. (Esfeld declined a request for comment from Insider.)
Esfeld received a commission of roughly $30 per vehicle for each signed pre-order, according to the suit, on top of his $100,000 base salary. He would also receive a commission of 0.14% of the vehicle’s sale price for pre-orders that officially became sales. He was one of several employees that worked specifically on obtaining pre-orders for the truck.
During his time at the company, Esfeld was paid commissions for 3,050 vehicle pre-orders, from companies including Duke Energy and American Electric Power. (The case also notes Esfeld had been working to win over Amazon, which ultimately agreed to buy 100,000 electric delivery vans from Lordstown rival Rivian.) But, he alleged, after laying him off in 2017, Workhorse failed to pay him $440,707 he had earned in commissions, representing about 5,000 pre-orders, including from Ryder, one of Lordstown’s biggest pre-order signees to date. (He ultimately won the suit, and Workhorse paid him an agreed upon amount of $87,000 in damages and $32,245.02 in attorneys’ fees and costs.)
The practice continued at Lordstown. In 2020, the startup hired consulting group Climb2Glory to commission orders, according to Hindenburg Research. On a page that was deleted after the short-seller’s report was released, Climb2Glory referenced how it helped Lordstown generate pre-orders.
Workhorse Group, Lordstown Motors, and Climb2Glory did not respond to requests for comment from Insider.
A questionable spin on a questionable practice
The Workhorse and Lordstown policy of paying commissions for pre-orders appears rare. “This is the first time I’ve heard of a start-up in that space doing anything like that,” Pitchbook analyst Asad Hussain told Insider. Comparable electric car startups, including Rivian, Lucid Motors, Fisker, and Nikola, do not pay commissions for pre-orders or contract workers to secure them, Insider found.
In recent automotive history, Elon Musk set the standard of using pre-orders to preview sales figures. “Tesla’s reservations taught the industry that this is a way to develop credibility with investors,” Ramsey said. But while it once charged $50,000 to pre-order a Roadster, it now asks a mere $100 from someone who wants a Cybertruck. That’s comparable to (usually refundable) reservation fees charged by the likes of Fisker ($250) and Lucid Motors ($300).
That lesson isn’t necessarily a good one, Ramsey said. “Investors need to think long and hard about the viability of the pre-orders that any of these startups are touting.”
Hussain told Insider that investors need to focus more on technology and execution, rather than “propaganda.” He thinks the Wall Street trend of using special-purpose acquisition companies to go public has put a lot of companies, like Lordstown Motors, in a position they’re not mature enough for yet.
“The ability for early stage startups to go to market, even without revenue, creates a double-edged sword,” Hussain told Insider. “It allows everyday people to gain access to disruptive technologies like electric cars, but it also puts new companies and investors in a precarious position – how can they prove there will be demand for their product, without revenue? That’s where pre-orders can get tricky.”
For Lordstown, reliance on pre-orders has put it in the crosshairs of notorious short-seller Hindenburg Research. Just last fall, the same group released a damning report on Nikola that caused the company’s stock to plummet and its CEO Trevor Milton to step down. Currently, Lordstown is under investigation by the Securities and Exchange Commission for its pre-order practices. Its stock is trading at around $9, down from a high of $30 in February.
“A lot of these companies tout non-binding pre-orders or reservations,” Hussain said. “But, if you’re actually paying for them [the pre-orders] it does bring up some questions and it is not characteristic of the space.”
“The key question mark for many of these startups is: Can you actually get your factories up and running? Can you actually manufacture those vehicles?”
Lordstown Motors said Wednesday that it is cooperating with financial regulators following a short-seller’s report that accused the electric-vehicle startup of misleading investors by overstating its order volume.
The Ohio-based upstart is complying with an information request from the US Securities and Exchange Commission, Lordstown’s founder and CEO Steve Burns said at the start of the company’s inaugural earnings call Wednesday.
Lordstown’s board of directors has also appointed an internal committee to review the short-seller’s claims, Burns said, adding that the company would not be able to share any more information until the group completes its audit.
Hindenburg said Lordstown has “no revenue and no sellable product” and accused it of misleading investors “on both its demand and production capabilities.” Lordstown was founded in 2018 and plans to manufacture a $52,500 electric pickup truck for fleet customers, the Endurance, at a former General Motors plant.
Although Lordstown claims to have 100,000 preorders for the pickup, Hindenburg said the company has artificially juiced those figures to boost its investor appeal. Hindenburg alleges that many preorder holders – including one company that reserved 14,000 units – never intended to follow through on a purchase, and that Lordstown paid consultants to drum up reservations.
“Our conversations with former employees, business partners, and an extensive document review show that the company’s orders are largely fictitious and used as a prop to raise capital and confer legitimacy,” the short-seller said.
A Lordstown spokesperson on Friday told Insider in an email that the startup “will absolutely be refuting” Hindenburg’s report in a future statement.
Hindenburg also alleged that Lordstown is years away from producing the Endurance, citing one former employee.
Lordstown reiterated on Wednesday that it is on track to begin producing the pickup in September, and said that interest in the model has been greater than expected. The company said it will produce several prototypes by the end of March, and that it is accelerating plans to build it’s second vehicle, a van.
Lordstown went public through a blank-check merger in October in a deal that valued the firm at $1.6 billion. It now has a market cap of roughly $2.5 billion.
On Wednesday, the company reported a net loss of $101 million for 2020. Shares fell about 3.3% in late trading following the release.
Shares of Lordstown Motors tumbled as much as 23% on Friday after short-seller Hindenburg Research said the electric pickup truck maker has misled investors.
The research firm said it had taken a short position in the Lordstown Motors after determining that it has “no revenue and no sellable product.”
Lordstown’s stock plunged to as low as $13.64 per share on Friday. The company went public via a SPAC in October amid a rush of other EV SPACs including Nikola, Hyliion, Canoo, and Fisker.
Hindenburg slammed Lordstown for misleading investors on both its demand and production capabilities. Lordstown said in January it had received more than more than 100,000 non-binding production reservations from commercial fleets for its EV truck.
“The company has consistently pointed to its book of 100,000 pre-orders as proof of deep demand for its proposed EV truck,” Hindenburg said. “Our conversations with former employees, business partners and an extensive document review show that the company’s orders are largely fictitious and used as a prop to raise capital and confer legitimacy.”
Lordstown Motors is down roughly 25% since its public debut in October.
MicroVision stock skyrocketed as much as 50% on Thursday after the company announced it has made significant progress on its patented Lidar technology for autonomous vehicles.
MicroVision said it received the necessary components and equipment to meet its April milestone of completing A-Samples of its Long-Range Lidar (LRL) Sensor and it started outdoor testing of key performance features on its development platform.
“We expect MicroVision’s Long-Range Lidar Sensor, (LRL Sensor) which has been in development for over two years, to meet or exceed requirements established by OEMs for autonomous safety and autonomous driving features,” said Sumit Sharma, Chief Executive Officer of MicroVision.
MicroVision’s CEO also said he expects his company’s first generation Lidar sensor to have a range of 250 meters and “the highest resolution at range of any lidar with 340 vertical lines up to 250 meters, 568 vertical lines up to 120 meters, and 944 vertical lines up to 60 meters.”
MicroVision’s stock has gained 1,225% in the last six months and over 3,000% throughout the past year. The rapid rise in share prices for a company that doesn’t produce any significant revenues caused short-sellers to take notice.
In December Hindenburg Research blasted MicroVision calling the company a “corporate husk.”
“We are short $MVIS. In a market gone mad, this $1.2 billion market cap corporate husk with almost no revenue or intellectual property value is a standout.” Hindenburg Research tweeted.
“It has risen 5,000% from lows this year on misguided retail euphoria over its LiDAR IP portfolio amid a broad EV bubble,” Hindenburg continued. “No one buys patents these days for any real money unless the patents have been put through the test of at least an IPR, our IP attorney told us.”
MicroVision claims its Lidar sensors are some of the best, most scalable products in the industry.
“We expect the capability of our LRL Sensor to meet or exceed OEM requirements, based on technology we have scaled multiple times over the last decade, as being a very strong strategic advantage,” Sharma said.
“Additionally, our sensor being designed on scalable silicon wafer and laser diode technologies will be capable of achieving scale at costs below $1,000 ASP, a key price point expected for commercial success,” added Sharma.
The company posted just $639,000 in revenue during the three months that ended in September and a net loss of $2.8 million.
MicroVision traded up 29.57%, at $18.14, as of 3:32 p.m. EST on Thursday.