Initial Disclosure: After extensive research, we have taken a short position in shares of Facedrive. This report represents our opinion, and we encourage every reader to do their own due diligence. All figures in CAD unless otherwise specified. Please see our full disclaimer at the bottom of the report.
Facedrive was founded in 2016 with the core premise of being an “eco-friendly” ridesharing app. It allows riders to choose environmentally friendly vehicles by giving them electric, hybrid or gas-powered options.
The company soft launched its app in Ontario in late 2017 and currently operates in a handful of Canadian locations. [Pg. 21]
Facedrive’s stock, on the other hand, gives the impression of a robust business; recently rocketing higher with the help of numerous buzzword-laden press releases, despite limited tangible underlying operations.
The stock has spiked about ~640% since it came public via reverse merger in September 2019, propelled by over $8 million in paid promotion inappropriately disclosed as platform marketing. This is the most expensive stock promotion campaign we have ever seen.
Facedrive currently trades at a ~$1.4 billion valuation, or an obscene ~908x revenue multiple based on run-rate from last quarter’s $388k in sales. This makes Facedrive the most expensive >$1b technology company in the world on an EV / sales basis.
We believe Facedrive’s ride hailing business is fundamentally flawed and unlikely to generate significant sales (particularly based off of our research, to be presented). Meaningful sales growth would come at the cost of significant cash that the company doesn’t have.
The ridesharing industry operates as an intensely price competitive near duopoly, where incumbents Uber and Lyft have incurred a cumulative multi-billion dollar annual cash burn in order to even maintain market share. Ridesharing is generally priced near the cost to provide the ridesharing service, where Facedrive is forced to offer services below market price due to lack of brand recognition.
Facedrive has very few users, minimal resources, and no sustainable differentiator (Uber or Lyft could easily add electric vehicle options if they ever felt it worthwhile to eliminate Facedrive’s supposed ‘niche’.)
COVID materially disrupted the ridesharing industry earlier in the year; a shock that even Uber and Lyft have not fully recovered from. Analysts now expect that Lyft will do 40% less sales than were estimated at the start of the year.
Likely seeing the writing on the wall for its ridesharing prospects, the company has decided to pivot wildly with launches of products spanning an array of disparate industries. These include:
All of these endeavors are, at best, poorly conceived and executed ideas or, at worst, a series of PR stunts with limited real business intention behind them. Given Facedrive’s lack of progress in these areas, we lean toward the latter.
Facedrive displays several more worrying signs, including multiple related party transactions with its CEO and a highly unusual series of payments to an opaque newly-named entity in the British Virgin Islands.
We think Facedrive is a story stock whose tale is in the process of unraveling. We anticipate a sharp repricing of shares in the immediate future and see de minimis overall value in the company’s operations.
In May 2020, Facedrive announced it hired a company called Medtronics Online Solutions Ltd. to “perform marketing and strategic consulting services”. In the announcement, Facedrive’s CEO strongly suggested that the services were part of a global marketing campaign to expand visibility of the company’s ridesharing platform, its core business:
“As Facedrive prepares for global expansion, it is more important than ever to get our ‘people-and-planet first’ message across to audiences not only in Canada, but in the United States and Europe, in the most efficient and effective way. With that in mind, I am excited to work with Medtronics, whose unique marketing strategy and proven global outreach will help us ensure that our first-of-its-kind eco-friendly ride-sharing platform reaches the widest audience possible with maximum impact,” said Facedrive CEO Sayan Navaratnam.”
The price for the “marketing and strategic consulting” services was steep. The company later disclosed it had paid Medtronics 800,000 shares for its initial month of services, valued at $8.2 million, and an obligation to pay 105,000 shares each month for the next 7 months. The shares are subject to certain lock-up restrictions, per the arrangement.
Neither announcement stated which jurisdiction Medtronics was located in – and finding it was no trivial task. Medtronics is described as having a global marketing presence, yet Google had just 3 results for the entity outside of the Facedrive announcement (and all 3 were actually related to the announcement).
We located the entity in the British Virgin Islands, registered to nominee directors. BVI Corporate records show that the entity had been named Leacap Ltd. up until about a month before the Facedrive contract, when it changed its name to Medtronics.
LeaCap Ltd. is associated with OilPrice.com, a website known for stock promotion. The site has issued at least 7 articles touting the glowing promises of Facedrive and its stock since March. [1,2,3,4,5,6,7]
We found the deal with Medtronics to be unusual for a number of reasons:
“An affiliated company of Oilprice.com… has signed an agreement to be paid in shares to provide services to expand ridership and attract drivers in certain jurisdictions outside Canada and the United States.”
Facedrive doesn’t currently operate anywhere outside of Canada and has barely made headway in its home market, as we will show.
If it was not clear enough, OilPrice.com characterizes itself as the following:
In other words, this is a stock promotion agreement between Oilprice.com and Facedrive which has been inappropriately disclosed as a marketing agreement for the platform.
Furthermore, the content looks unmistakably promotional. On Apr 21st, OilPrice.com published an article about “6 Visionaries Shaping the Future of Transportation”, which compared major public company CEOs such as Amazon’s Jeff Bezos, Google’s Sundar Pichai, Tesla’s Elon Musk, Virgin’s Richard Branson… and Facedrive’s Sayan Navaratnam.
Another article describes Facedrive as part of the sustainability movement and declares “Buffet [sic], Bezos And Blackrock Are Betting Big On This $30 Trillion Mega-Trend”.
What does that have to do with recruiting drivers outside of the U.S. and Canada?
(It does not appear that Buffett or Blackrock have stakes in Facedrive. Also, the name is spelled “Buffett” with two t’s—a buffet is a self-serve style of casual dining.)
OilPrice.com shows the following disclaimer on its articles, which suggests that stocks it profiles have a habit of spiking then plummeting once it stops touting them. The language appears to us to be all but saying “stocks featured on our site pump then dump”:
“This communication is for entertainment purposes only… Frequently companies profiled in our alerts experience a large increase in volume and share price during the course of investor awareness marketing, which often end as soon as the investor awareness marketing ceases.”
We expect Facedrive is already on the back half of this “awareness marketing” trajectory.
We found other troubling signs in Facedrive’s brief history as a public company. Despite its modest size, Facedrive has relied extensively on a network of companies controlled by its CEO. The company’s 2019 filing statement detailed paying no fewer than 4 entities controlled by its CEO, providing everything from marketing, to call center services, product development and office space. [Pg. 64]
In total, the company expensed $1.26 million to related entity Dynalync for R&D and operational support in 2019, representing over 24% of the company’s annual operating expenses. [Pg. 9]
This also isn’t Facedrive CEO Sayan Navaratnam’s first foray into the public markets.
He was also Chairman/CEO of Creative Vistas, a broadband systems integrator primarily focused on servicing Canadian customers of Rogers Communications. Navaratnam was named Chairman and CEO of the company in 2004. [Pg. 3]
The company appeared ultimately unable to maintain operations due to lackluster revenue and cash flow. Navaratnam ended up purchasing the company’s main operating subsidiary for $1 plus the assumption of the company’s debt. [Pg. 20]
In February 2011, the company ceased being quoted on the OTC Bulletin Board and was relegated to the OTC Pink Sheets.
It appeared to cease filing around 2012 and trades today for $0.03 on the U.S. Over the Counter markets – representing ~99% downside for anyone who owned the stock at almost any point during its primary operating history.
Navaratnam is still listed on the company’s website as the Chairman of the Board, which describes him as “the visionary who plays a key role for the growth strategy of Creative Vistas”.
Assuming that Navaratnam is bringing the same “visionary” talents to Facedrive, we decided to dig further into the company’s prospects and operations.
In an industry with virtually no technological barriers to entry, ridesharing companies are locked in an arms race to establish the largest rider & driver networks as the key competitive moat. After ~3 years of operation, Facedrive is nowhere close to making a dent.
Creating a vibrant network of drivers and users is essential for the success of any ridesharing platform.
A March 2020 Facedrive investor presentation seemed to suggest great progress along that path, boasting of 13,000 drivers registered on its platform. However, after our own analysis, interviews, and testing we suspect the number of active drivers is significantly lower, likely in the range of 500-600.
For context, the company reported gross fees from rides of $852,200 in Q1 2020, which implies about 6-7 rides per working day for 500-600 drivers, given the historical average fee of $10/ride. [Presentation Pg. 20]
This estimate was corroborated by our field testing. In the key Downtown Toronto region, we found the app regularly had only 2-4 drivers available. The most drivers we found at one time in Downtown Toronto was 7, which appeared on 5:00pm on a Friday (end of week rush hour/happy hour).
Facedrive support confirmed that all available drivers appear on the app’s map.
Anecdotally, an industry colleague attempted a short trip in Toronto but the app was unable to match them with a ride after a 10-minute wait. After the match failed, Facedrive support called their phone to ask if they still wanted a ride (like a traditional, non-app-based taxi service). They described the experience as “very strange”.
In a call with Facedrive support, the rep acknowledged to us that they do not have enough drivers in Downtown Toronto and that they often attempt to call in drivers from other areas, which increases wait times and worsens the user experience. He said in Scarborough they were more active, with ~10-15 drivers on the road at any given time.
Our review of the app showed that in Ottawa, which the company launched amidst much fanfare in the beginning of July, generally had zero to two drivers at a time. London, Ontario had around 10-15 drivers on the road during our testing.
After ~3 years of operation, Facedrive’s revenue doesn’t even show up relative to competitors.
We get another glimpse of how Facedrive fares relative to industry leaders by tracking downloads on Android’s Google Play store and Apple’s App store. On Google Play, the largest market, Uber has 500+ million installs and Lyft has 10+ million, while Facedrive has barely eclipsed 10,000.
On the Apple App Store, which doesn’t display installs but does show number of ratings, we see Uber with 1.2 million ratings, Lyft with 8.2 million and Facedrive with just 460.
Despite its lack of userbase and lack of revenue, Facedrive seems well-suited for social media, where it could gain support for its stated mission of sustainability. However, we see that as of this writing it has only 3,634 follows on Facebook and 764 followers on Twitter. These numbers pale in comparison to the combined millions of followers shared between Uber and Lyft.
Facedrive’s User Reviews on Google and Apple Are Worse Than Both of Its Main Competitors
Beyond its lack of revenue, lack of a user base, and lack of social media presence, Facedrive has worse user reviews than rivals, making it tough to gain market share based on user satisfaction and word of mouth.
Facedrive users regularly complain of being unable to get rides and poor/delayed customer service.
Facedrive clearly has a lot of catching up to do, which in the capital-intensive ridesharing industry requires substantial cash resources. The path to winning new drivers and riders often requires cash incentives, lower rates and extensive hardware and support infrastructure.
Uber, for example, has an accumulated deficit of over $19 billion owing to its “first mover advantage” and large historical expenditures that propelled it to dominate new markets around the globe. [Pg. 4] It will likely burn substantially more cash before reaching profitability (if it ever gets there). Last quarter alone, Uber burned about $850 million in cash. [Pg. 9]
As of the latest quarter, Uber and Lyft had war chests of about $10.8 billion and $600 million, respectively. By comparison, Facedrive’s change purse consists of ~$10 million, which includes the proceeds from its recent financing rounds.
Over the past 4 quarters, Facedrive has burned $5.4 million in operating cash flow while generating only $951 thousand in revenue. These numbers do not bode well, and Facedrive’s cash burn has increased alongside revenue quarter by quarter.
Startups that struggle with their original idea will often undergo a “pivot” or a significant change in business direction, in an effort to reinvent themselves and find a sustainable niche. Sometimes, when businesses try to opportunistically cash in on trendy PR lingo that has lifted other companies’ stock prices, they will engage in more than one pivot (see our recent reporting on Ideanomics, for example).
Given its hurdles in ride hailing, we were not surprised to see Facedrive attempt to change course. However, rather than picking one project, the company has launched numerous disparate buzzword-laden projects in the past several months, including:
Facedrive is single-handedly attempting to succeed in ride share, ESG, COVID-19 tracing, AI, food delivery, and more. The company and its’ promoters use terms such as AI, Machine Learning, TaaS (Transportation as a Service), ESG, and EV to describe itself. While the collective endeavors have lent themselves well to numerous buzzword-laden press releases, none of the efforts appear to be succeeding.
COVID-19 had a materially negative impact on ride sharing services (ex. Lyft’s Q2 consensus revenue estimates were cut 66%). At first, the company conflated itself with COVID by stating that it will offer discounted rides for healthcare workers and dedicated “COVID-19 Trained” drivers.
Then, Facedrive announced a hard pivot.
On April 20th 2020, the company announced that it had created an app to help with COVID-19 contact tracing. The language of the announcement strongly suggested the app was already developed/created and was approaching a near-term release:
“Facedrive…is pleased to announce that in collaboration with University of Waterloo, has developed (sic) “TraceScan”, a digital contact-tracing app designed to support nationwide efforts to slow the spread of COVID-19.”
“TraceScan was created in an effort to offer ongoing frontline assistance in response to the COVID-19 pandemic”
“The app is expected to release within the next 30 days.”
Despite these representations, we reviewed emails with the University of Waterloo professor leading the project which directly contradict Facedrive’s statements.
As of May 17th, almost a month after Facedrive’s above April 20th announcement, the professor stated that a Memorandum of Understanding (MoU) was in place, but no agreement had been formalized and resources still needed to be allocated to the project. Note that according to Facedrive’s April 20th announcement, the “developed” app was set to be released around this time. Contrary to these representations, there apparently was not even a final agreement in place to begin development.
Despite the apparent lack of an agreement, Facedrive has continued to issue press releases suggesting significant progress.
On May 28th, the company announced that the University of Waterloo was working to enhance the TraceScan platform with AI, which it expected would be ready for testing in 30 to 90 days. Waterloo was also apparently developing Bluetooth-based wearables:
“Facedrive Health and Waterloo researchers are also developing Bluetooth-based wearables that will improve contact tracing accuracy and real-time monitoring of the recovery progress through measurement of specific vital signs.”
Despite this announcement, in late June, emails reviewed with the University of Waterloo showed that the contract appeared to still be unsigned, and that the new focus was on applications for the workplace.
The change of focus to the workplace is likely because Facedrive had been competing for a contract from the government of Canada to be the country’s official COVID-19 tracing app. In mid-June, the government announced that it selected its own Federally-backed project for the task, closing the door to a major potential opportunity for Facedrive.
The company continues to tout its app, however. This week, Facedrive announced that its wearables were available on the Microsoft App store “by invitation only”. This means that the app is not accessible to the general public, making it very difficult to assess its functionality.
We have reached out to the University of Waterloo professor for an update on the project this week but have not heard back as of this writing.
We have also reached out directly to Facedrive’s CEO to ask for clarification on (i) the status of the company’s contact tracing app; (ii) whether/where it is actively being used; (iii) whether the wearables are able to be purchased; (iv) who manufactures the wearables, and; (v) whether a formal contract (not an MoU) is or ever was in place with the University of Waterloo.
We have not heard back as of this writing, but we hope the CEO provides the market more clarity on what exactly they have developed and when they developed it – especially given the claims and relatively vague details provided in company press releases.
Rather than focusing on tackling just one resource-intensive highly competitive market like ridesharing, Facedrive recently entered a second—food delivery.
Facedrive launched “Facedrive Foods” around May of this year in an attempt to compete with Uber Eats. (Facedrive Foods is alternately referred to as Eats by Facedrive on its website, without clear explanation for the mixed branding).
One of the benefits of having a large, vibrant, user network is the ability to launch new complimentary services. This is probably why Uber launched Uber Eats, which tapped into its large existing network of drivers and users to monetize personal transportation in a different way.
This is also probably why Facedrive, with its lack of an existing significant network, should not be launching a food delivery service.
Unsurprisingly, Facedrive Foods/Eats by Facedrive appears to be struggling. As of this writing, a total of 17 restaurants are available on its platform. Here is how Facedrive’s platform compares to the primary apps in this steeply competitive market:
The company has also made a rather big deal out of an acquisition of certain assets of bankrupt Foodora, a failed food delivery service in Canada.
Facedrive has issued multiple announcements about what it termed the “major” acquisition of Foodora assets, which seem to consist of marketing lists purchased from the company out of bankruptcy. Terms of the deal show that Facedrive paid $500,000 for the customer and restaurant lists of the failed company and can now market to them “subject to customer consent and opt in”.
We called the first several “most popular” restaurants on the Facedrive Foods page.
Here is what we were found (we have the calls recorded):
On June 17th the company announced the launch of a trivia app in order to “encourage building connections and practice social distancing” during COVID. It is a separate app from Facedrive requiring its own download.
As of this writing, the app had 2 reviews on the Apple App store, and about 150 reviews on Google Play.
About 1/3 of the apps ratings on Google Play were from June 11th—six days before the announced launch of the app. All were 5 stars. Exactly one month later, on July 11th, the app gained another burst of 17 reviews, all but one of which were 4 stars, including reviews from users such as “Justin Bieber” and “Tom Hanks”.
We tried the app and found the questions to be fairly unusual:
It is unclear what the monetization plan for the trivia app might be if it ever manages to establish a significant userbase.
In May 2020 Facedrive launched the “highly anticipated” Facedrive MarketPlace, which seems to largely sell hoodies and hats branded with Facedrive and a brand called “Bel Air” for ~$100. We can’t imagine these are hot sellers.
With limited engineering resources, including a historical reliance on outsourced product development, it seems that Facedrive is spreading its thin resources broadly.
We do not think Facedrive’s core ride hailing business is viable and we find its “marketing” and related party spends to be extraordinary alarming. The $8.2 million “marketing” payment is the largest payment we have ever seen for what we believe to be clear stock promotion.
We have doubts about the veracity of the company’s claims relating to its COVID contact tracing app. Its trivia app, its Uber Eats clone, and its marketplace strike us as ill-conceived side projects likely hastily thrown together for show.
With about a year of cash on its books, Facedrive will almost assuredly launch more ‘new’ initiatives, but we think this “story” stock is heading toward a hard repricing and see eventual full downside.
Use of Hindenburg Research’s research is at your own risk. In no event should Hindenburg Research or any affiliated party be liable for any direct or indirect trading losses caused by any information in this report. You further agree to do your own research and due diligence, consult your own financial, legal, and tax advisors before making any investment decision with respect to transacting in any securities covered herein. You should assume that as of the publication date of any short-biased report or letter, Hindenburg Research (possibly along with or through our members, partners, affiliates, employees, and/or consultants) along with our clients and/or investors has a short position in all stocks (and/or options of the stock) covered herein, and therefore stands to realize significant gains in the event that the price of any stock covered herein declines. Following publication of any report or letter, we intend to continue transacting in the securities covered herein, and we may be long, short, or neutral at any time hereafter regardless of our initial recommendation, conclusions, or opinions. This is not an offer to sell or a solicitation of an offer to buy any security, nor shall any security be offered or sold to any person, in any jurisdiction in which such offer would be unlawful under the securities laws of such jurisdiction. Hindenburg Research is not registered as an investment advisor in the United States or have similar registration in any other jurisdiction. To the best of our ability and belief, all information contained herein is accurate and reliable, and has been obtained from public sources we believe to be accurate and reliable, and who are not insiders or connected persons of the stock covered herein or who may otherwise owe any fiduciary duty or duty of confidentiality to the issuer. However, such information is presented “as is,” without warranty of any kind – whether express or implied. Hindenburg Research makes no representation, express or implied, as to the accuracy, timeliness, or completeness of any such information or with regard to the results to be obtained from its use. All expressions of opinion are subject to change without notice, and Hindenburg Research does not undertake to update or supplement this report or any of the information contained herein.