Taskus share price to plummet by 50 percent –Spruce Point Capital
Outsourcing firm TaskUs is headed for a stock market price doom after fluffing up its numbers, hedge fund Spruce Point Capital boldly predicted in a detailed report released recently.
“We estimate 25% – 50% downside risk to TaskUs’ share price…” Spruce Point Capital’s reports.
Spruce Point capital claims that TaskUs, which completed its initial public offering (IPO) in June 2021, has a pattern of projecting an overly optimistic picture of its business.
The hedge fund claims that throughout its IPO process, TaskUs cited a September 2019 market report from the Everest Group which valued the content security market at $5.8 billion in 2021 with 40–50% projected market growth through 2021. But Majorel Group, a key competitor which TaskUs fails to disclose, cites Everest Group data from May 2021, valuing the content security market at between $4 – $5 billion and projects growth at just 30 – 40% from 2020 to 2023.
“We believe TaskUs is not an industry leader in an already slowing content security market.” Spruce Point Capital said.
TaskUs is one of more than 10 external content moderators that provide services to Facebook but they have not publicly stated that Facebook is a driver of margin decline for the Company.
Facebook revenues increased 34% in the first nine months of 2021 compared to the same period in 2020, while Facebook receivables were up 112% YTD. Facebook accounts for 28 percent of TaskUs’ business.
Furthermore, Spruce Point Capital said that TaskUs’ unbilled receivables have been steadily rising for the last 18 months. And the short seller suggests that TaskUs may have been booking revenue ahead of receiving collections.
“During the first quarter of 2021 TaskUs’ percentage of unbilled receivables to billed receivables spiked to 63.8%, only to fall precipitously over the following two quarters. On the Company’s third quarter 2021 earnings call, TaskUs’ CFO said the Company was implementing a new order to cash process as new clients are onboarded to improve cash collection and reduce days sales outstanding. However, a closer look shows that of the $29.7 million total increase in receivables for the quarter, $23.1 million (78%) came from Facebook.” Spruce Point Capital claimed.
Finally, Spruce Point Capital said that despite TaskUs’ claims that it “derives its competitive strength from its company culture” it has not been consistent with its attrition rate.
“TaskUs cites that annualized attrition rates for employees who were employed for more than 180 days were 32.0% and 14.9% in 2019 and 2020, respectively. However, based on an interview of a former TaskUs executive, we learned that most turnover occurs in the first 90 days, calling into question why TaskUs cites 180 days as relevant.” the report read.
The report concludes by saying that after conducting rigorous forensic review, “[We] believe investing in Concentrix Corp and Majorel Group are better ways to gain exposure to the technology BPO sector.”
