Checking in at Wokeistan

It ain’t what you think. This is about corporate BS juxtaposed with real world performance

via Mocah.org

Note: this story is coming a day earlier than usual as I’m on the road tomorrow.

In my former life the instant turn off was always the presser that started with:

[Name your company here] the leader in [invent your tech class that no-one’s heard of before today here] announces the launch [i.e. doesn’t exist yet] product/service that’s going to transform/save the planet/ [i.e. we hope makes the investors stinking rich before the wheels fall off.]

Over the years I saw hundreds if not thousands of such crappy missives, often followed up 2-3 days later with a pleading:

Did you get my email?

Anyone who knows me also knows what happened next.

Enter stage left - Scott Galloway’s Yogababble

So it was with some amusement that I recently stumbled across Scott Galloway’s evisceration of Aspiration.

Galloway, a marketing wonk with cajones you don’t want to mess with, takes an interesting approach to analyzing corporate filings. He applies what he terms a Yogababble Index to the statements he finds in S-1 filings. His thesis goes like this:

We believe there is an inverse correlation that may be a forward-looking indicator for a firm’s share performance. 

Yogababble scale 1-10: 
1/10: I’m a professor of marketing who likes dogs.
5/10: I’m the Big Dawg.
10/10: I am a spirit Dawg that unlocks self-actualization.

The further up the scale you go, the more inverse the correlation, the more BS larded the corporate release. In Galloway’s analysis, a 10/10 should be avoided at all costs.

Aspiring to…?

On Aspiration, Galloway says:

We don’t have a prospectus for Aspiration yet, but a Yogababble assessment of its investor presentation reveals the following: “Sustainability/sustainable” appears 30 times, while “profit” appears 11. Excluding mentions in footnotes, “climate” appears 10 times, while “debit” (the company’s actual product) appears only four times. The company promotes its AIM score but never explains how it works. It does, however, describe it as “a Fitbit for sustainability.”

See where this is going? But then it gets way more interesting to my accounting trained eye:

Smearing more vaseline on the lens of the actual business fundamentals, Aspiration turns to creative accounting. Specifically, it leans heavily on a profitability measure called EBITDAM. EBITDA is the familiar “earnings before interest, taxes, depreciation, and amortization.” It’s a measure of how profitable a company’s core operations are before the vagaries of capital structure, tax strategy, and accounting charges. EBITDAM excludes all those things … and then also excludes marketing spend.

Galloway argues that EBITDAM is OK ‘in very small doses,’ which I can almost buy, but then explains how Aspiration ventures into fantasy land by looking at the claims that Aspiration is cashflow positive before applying EBITDA plus marketing spend.

I have enough trouble with companies that massage performance by excluding share based comp in their non-GAAP earnings numbers but EBITDAM raises the bar on financial BS to a whole new level. For me it’s EBIT-be-DAM-ned!

Galloway’s analysis doesn’t end there. Check this out:

Aspiration is a difficult firm to value, considering its blended corporate/consumer revenue mix and ambitious projections. But the core of the company is its debit card business, and for that we have a close comparison: Dave. Dave is also going public via SPAC, and it also has an investor deck with similar information. Dave was EBITDA positive in 2020 on $122 million in revenue and finished the year with 3.7 million active accounts. Dave’s post-SPAC projected enterprise value is $3.6 billion. That’s 29 times its 2020 revenue.

Aspiration, meanwhile, lost $63 million in EBITDA last year on $15 million in revenue and finished the year with 360,000 consumer accounts (and two corporate accounts). Aspiration’s post-SPAC projected enterprise value is $1.9 billion. That’s 129 times its 2020 revenue.

A growth-driven valuation can be justified, but for companies with real strategic advantages. I’m not seeing any moats here — just the captain of Aspiration Air Flight 2.1 asking us to look out the left side of the plane and gaze at the bright lights of Wokeistan.

I love this analysis. It takes no prisoners. It deals in facts as best can be ascertained yet crafts the narrative into penmanship that anyone can understand. In short, Galloway explains what a trip to Wokeistan via the corporate communications wonderland looks like.

Is UIPath in Wokeistan?

If you think Galloway is off the mark then you might want to check what’s been happening with UIPath recently. The story is a technical takedown for the finance wonks in the crowd (knock yourselves out) but all you really need to know can best be expressed in this chart:

UIPath share price via Barchart.com

Put another way, I hear the leadership of that company is begging employees whose share lockup expires soon not to dump their shares for fear of sending the stock price even lower. Who'd a thunk?

What’s the story?

For this we need to go back to 2019 and Horses for Sources which wrote:

Let’s make no bones about it, this has been one sorry saga.  All we could do was warn the industry that cheesy marketeers, some lousy paid-for analysts and poorly-informed investors were forming a vicious web of bullshit that would take a solution with real potential and fake a market that bore no reflection of the one we originally dreamed up seven years ago.

And don’t say we didn’t warn anyone over the past year that the RPA market was in grave danger of being hyped out of existence.

At the time, HfS believed that UIPath was the prime ‘fake it ‘till you make it’ player that larded its offerings with enough BS to sink the Titanic while at the same time shitting on competition at a rate equivalent to a person suffering from cholera. Here’s one example from HfS analysis:

Quit the "robotic butler nonsense". Let’s define what we mean by RPA scale versus counting number of bots.  "A bot for every employee" simply means "buy loads of our licenses".

Here’s another:

Stop taking schoolyard potshots at competition.Competition gives your brand context and creates a healthy market.

Current and projected performance bears out HfS’s stern warnings of the time and the market has woke-n up.

The more worrying aspect comes from the relentless flow of upbeat PR successfully peddled to the media and analysts alike since the time that UIPath embarked on its journey. Unless there is credibly good news soon, a day of reckoning can’t be far off.

Welcome to Wokeistan, the bright gates of which belie their real content - a burning pit for BS laden companies.