I often make the mistake of stepping away from names that are down big from my initial spiel. Like everyone, I’ve watched new life get breathed into some of the most unlikely names, so when something is down over 75% from when I first mentioned it, I tend to move on to other names. BRDS was one of those names that just might have been a better idea at $2.0 than it was at $8.0. Given the huge write-off taken the company on both their unsold inventory and their fleet of scooters, it’s tough to see how this thing doesn’t end badly for everybody.
Like cars, scooters depreciate the second you drive them off the lot. The company deploys a usage-based depreciation schedule based on the number of rides taken by their customers. The problem with this methodology is that it ignores the enemy called Time, which eats away at the value of their inventory regardless of whether or not they choose to deploy all of their scooters or even if nobody chooses to rent them out each day. I get that a scooter driven 10x a day will be worse for wear than one sitting in a warehouse, but both will lose value over time. Thus, the company arrived at the scenario where writing down the value of their “for sale” inventory by $31M and their deployed inventory by $216M became necessary.
Unlike cars, the next batch of new scooters is likely to be cheaper than the last batch of cars. At the end of December, the company was sitting on $28M or so of unsold “inventory.” That’s the equivalent of about 2 years’ worth of actual product sales the company has recognized, and is almost equal to their totals going back to 2018. Unlike a new car sitting on a dealer’s lot, a scooter does not hold its value over time, at least not at the present moment. Perhaps there will come a point where the battery technology will stop advancing and the components will stop declining in price, but that time has yet to arrive and holding onto a couple years’ worth of scooters hoping for sales to pick up is pure madness.
Product sales are a straight-forward money-loser; gross margins are just plain negative going back the last couple of years. Why they do this I have no idea. Subtract another $31M from an already negative gross margin business, and they should just full stop doing this.
Doing some back-of-the-envelope calculations, if you were to take the $89.4M of the $216M of the remaining write-off they say is related to their fleet of scooters, then their scooter rental “sharing” business is also a hugely negative gross margin business.
Everything in the company’s financials and filings points investors away from considering “depreciation” as part of their business model. They want you to look away and not consider its effects. All of their metrics are provided on a “before depreciation” that show a potentially viable business model while the numbers shown after depreciation tell a much different story. Subtract out their overly liberal depreciation policy and the need to “impair” their inventory every couple years and it quickly becomes unsustainable.
If stock-based comp can be used as a sign of a company desperately trying to hold onto their talent before they fly off into the sunset, these folks would surely qualify. $49M in Q1 followed by $44M in Q2. They are literally giving employees over 20% of the company each and every quarter in order to induce them to stick around.
These folks have already blown through $1.5B of investor money. Does someone out there think maybe they just didn’t go big enough and put even more money into this? I’m thinking we’re past that, though Marc Andreesen is apparently flush with cash and looking for proven “winners” like this.
I normally avoid SPACs, typically for low float reasons, but this one hit the ground running with a decently sized float and what I consider to be a ridiculous business model. Short interest never really amounted to much, and even today after trading down to bankruptcy levels the short interest remains incredibly low.