Earlier this year, Sony Entertainment released God of War: Ragnarok, a masterpiece for the PlayStation 5. In it you play as Kratos, a god tasked (among other things) with killing another god with the power to foresee everything. For the sake of argument, we’ll rename this second deity “Mr. Market.”
The only way Kratos beats Mr. Market is by flooding his adversary with too much information. Even if a divine being can foresee every spear hit, there’s a limit to how much information they can process at once.
Management at Helbiz (NASDAQ:HLBZ) has applied that strategy with gusto this week. In a flurry of press releases, CEO Salvatore Palella has managed to confound professional investors, short sellers and day traders alike. And now that HLBZ stock is taking a breather, perhaps Mr. Market will finally have a chance to hit back.
Burying Your Opponent With Information
The information torrent began last Friday when Helbiz announced it was launching an investigation into naked short-selling of its stock.
“The Company believes that certain individuals and/or companies may have engaged in illegal short selling practices that have artificially depressed the stock price. As a result, Helbiz is evaluating its options and following the example of companies like the Genius Group in creating a comprehensive action plan to address this issue.”
Retail traders, of course, would jump on the news. On Monday, shares opened 122% higher — driven by meme investors’ general resentment of short-selling firms. To them, this was a gift from the heavens.
Helbiz would follow up with more details on its investigation the same day — a virtual necessity to keep its retail trader audience engaged.
And on Tuesday, the NYC-based firm announced that their latest sale campaign had “generated over 1,300 pre-orders” and would “amount to over 2.2 million USD in sales for the company.”
For a moment, Helbiz had beaten Mr. Market. Shares of HLBZ would spike to over 50 cents on the news, a 4X gain from the prior week.
But why would the company go through all this trouble? After all, Helbiz has been highly shorted since last August…
The Fear of the Nasdaq Gods
Eagle-eyed investors would have eventually found the answer buried in an SEC filing.
On Monday, Helbiz filed a report with the SEC that outlined issues with its Nasdaq qualifications. And buried at the bottom of the document:
The Nasdaq Exchange is now considering a de-listing of HLBZ stock.
Not only had Helbiz’s shares traded below the $1 limit for too many consecutive days. Its sub-$35 million market value and failure to meet annual shareholder meeting requirements meant that the Exchange had decided against giving Helbiz another 180-day extension.
Ordinarily, a company trading at less than $1 could reverse-split its shares to trade above the threshold. And a failure to hold an annual meeting “has no immediate effect on the listing of our… common stock or our warrants,” as Helbiz itself said in a Jan 4. press release.
But taken together, these factors built Nasdaq’s case to remove Helbiz from the exchange. And that’s exactly what Helbiz’s management found out on Jan. 17 before their information overload.
A Downgrade to OTC
A delisting from the Nasdaq exchange could spell disaster for Helbiz as a business.
The scooter company has long subsisted on selling stock for cash. On Jan. 20, the firm granted another 30.8 million shares to raise around $1.5 million in cash and pay down $5 million of debt. Since its 2021 SPAC merger, Helbiz’s share count has ballooned from around 40 million to over 180 million.
That’s because e-mobility is a cutthroat business that burns through cash. And fishing scooters from lakes is only a small part of the problem.
The rest comes from low costs of entry. Rival Bird Global (NYSE:BRDS) averages only around 1.5 rides per scooter per day, a product of overexpansion and overinvestment. Berlin alone counts at least five e-scooter operators, according to Bloomberg. And companies like Bolt Mobility managed to get started with little more than an endorsement from Olympian Usain Bolt. (The company shut down in August 2022, leaving a host of inoperable e-scooters and e-bikes scattered throughout cities).
That means it’s been difficult for any established firm to make profits. In the past 12 months, Helbiz has burned through $63 million in cash on barely $15 million of revenue. Before Monday’s rise, HLBZ shares were down almost 99% since its IPO. Bird Global has shown less miserable results, but losses are expected to grow 26% through 2023.
Can Helbiz Beat Mr. Market?
Of course, Helbiz can still succeed as a business. The industry’s theoretical cash returns are extraordinarily high; my own calculations suggest a $2,000 scooter can easily pay for itself in under 500 rides, thanks to fat margins.
E-scooter firms could also become more efficient than car rides if usage rates rise enough to offset idling power and manufacturing costs. A 50-pound scooter will obviously use fewer resources than a 5,000-pound SUV.
And finally, e-scooters and e-bikes are plain fun… and not just from a short squeeze investor’s view. An actual study found that electric bikes are 21% more fun than their pedal-driven counterparts.
In the end, God of War’s Kratos does beat
Mr. Market Heimdall, the God of Foresight, overloading his opponent with too much information.
Helbiz — with its flurry of press releases — could do the same. Its shares now trade well over the $35 million cutoff point, and a reverse split could help the firm regain Nasdaq compliance.
But unless Helbiz uses the opportunity to create a profitable business, then these God-tier efforts would have been a waste. No real-life firm (i.e. outside Sony’s mythical world) has ever managed to overload Mr. Market forever. And Helbiz probably won’t either.
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On the date of publication, Tom Yeung did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.