Spruce Point Capital has accused Samsara of overstating profitability metrics and said the cloud-based fleet management platform is “dramatically overvalued” given the “elevated growth risks” facing the business. Spruce Point predicted a 45% to75% plunge in the share price.
After taking into account incremental device cost and sales commission amortization for the calculation of Samsara’s adjusted EBITDA, the reported figures seem to have been materially inflated, with the adjusted EBITDA margin for fiscal 2023 being negative 22%, as opposed to the negative10% reported by the company, claimed Spruce Point in a short report Thursday.
After adding back stock-based compensation, the company’s adjusted EBITDA margins for fiscal 2023 were negative 49%, the short seller stated, adding that the company maintains opaque financial reporting, failing to provide markets with subscriber numbers, churn or total devices.
The report also alleges that Samsara is facing growing product recall risk tied to a Chinese wireless module supplier that was recently targeted by U.S. regulators due to security vulnerabilities. This, coupled with a slowdown in key growth metrics in recent months suggests Samsara is poised for a downward rerating, argued Spruce Point.
Samsara shares were slightly down at $25 each as of 10 a.m. EDT Thursday but are still worth more than double their price at the start of 2023, with a market value of 13.3 billion. Spruce Point sees the current valuation as “nonsense” and believes the fair value of the stock is between $6.91 and $13.34 per share.
Spruce Point argued one of the reasons for Samsara’s current price is a campaign touting the company’s association to artificial intelligence, aimed at retail investors. The short outfit also took aim at Samsara’s governance practices and “outrageous” compensation plan, saying the skills of its directors are “highly exaggerated” and that insiders are “working to maximize their compensation at the expense of shareholders.”