Our Special Situations Accounting Alerts provide investment catalysts mostly on U.S. equities for short-term trading ideasor serve as warnings to long-term investors in individual companies or sectors.
Authors
Dimitry Khmelnitsky
CPA, CA
Vice President, Head of Accounting & Special Situations
Dimitry is Head of the Accounting & Special Situations Group, focusing on organizations that pose a financial risk. He is also Head of Training, helping our clients and their analysts on analyzing complex accounting issues. Dimitry was the #3 ranked Special Situations analyst for Canadian stocks in 2020, as voted on by Canadian, U.S. and European investors, according to Brendan Wood International. He was #1 ranked in 2019 and #3 in 2018
Jacob Liu
MBA, MA, BBA
Research Associate
Accounting & Special Situations
Jacob is a Research Associate in the Accounting and Special Situations Group, focusing on organizations that pose financial risks. Prior to joining Veritas in 2020, he worked at TD Securities on the prime brokerage desk and PwC in the alternative investments group.
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Table of contents:
INITIATION REPORT - December 23, 2021
Sunrun Inc. (RUN) - SELL
Moment in the Sun
WEBINAR - October 7, 2021
Airbnb (ABNB) - A Veritas Deep Dive
SPECIAL SITUATIONS IPO REPORT - July 14, 2021
Krispy Kreme's IPO (DNUT): Sugar High
ACCOUNTING ALERT - May 27, 2021
Global Marketplaces companies: Dada Nexus, Uber, Lyft, Airbnb, Deliveroo, Deliver Hero, DoorDash, Grab, Just Eat Takeaway, Meituan and Pinduoduo
Not All Revenues Are Created Equal
ACCOUNTING ALERT - April 22, 2021
U.S. Residential Solar Leasing Sector: Sunrun Inc. (RUN), Sunnova Energy International Inc. (NOVA), SunPower Corporation (SPWR)
Blinded By the Light: Highlighting Solar Non-GAAP Risks
INITIATION REPORT - December 23, 2021
Sunrun Inc. (RUN) - SELL
Moment in the Sun
(only clients may read the report)
Despite RUN’s recent share price decline, we have identified several headwinds that we expect will weigh heavily on the company’s stock price. Headwinds include declining third-party ownership (TPO) market share, key input costs of solar and battery systems, subsiding subsidies (both federal and state) and aggressive non-GAAP metrics.
This is a follow-up report to our Accounting Alert published in April, 2021: Blinded By the Light: Highlighting Solar Non-GAAP Risks
WEBINAR - October 7, 2021
Airbnb (ABNB)
A Veritas Deep Dive
| Video Replay | View the Slides |
(only clients)
This was a replay from our online 9th Annual Great Canadian Real Estate Conference in which Veritas REITs Analyst Howard Leung covered Accounting and Strategic issues and opportunities at Airbnb.
Accounting:
• Timing of Bookings and Revenue: Airbnb’s take rate is ~12%-14%, but is seasonal.
• Incentive Accounting: Based on our review, Airbnb seems to take a more liberal approach than its peers Expedia and Booking, which affects the already lofty price-to-sales multiples.
• Reserve for lodging taxes: Municipalities are accusing Airbnb of not paying its fair share of lodging taxes. Management chooses to exclude a realty tax reserve from adjusted EBITDA, arguing it is non-cash.
“It shouldn’t be completely excluded from adjusted EBITDA because it is a cost of doing business, and that cost of doing business is probably going to get higher.” - Howard
Future Strategy of Long-Term Leasing:
• Global restrictions: Cap rates for the maximum length of stay.
• Is it time to pivot to long-term leasing? Long-term renting is a painful process for tenants and landlords. Could Airbnb help solve these pain points? What is the total addressable market?
• What about office leasing? A look at the return to work for big companies. What is the total addressable market?
SPECIAL SITUATIONS IPO REPORT - July 14, 2021
Krispy Kreme's IPO (DNUT):
Sugar High
(only clients may read the report)
Krispy Kreme (DNUT) recently completed its second IPO, but we suggest investors avoid its rich valuation. At the current price of ~US$18, DNUT trades at a premium to most publicly traded restaurant peers. Based on our calculation, DNUT’s IPO was completed at almost 23x TTM EBITDA. Inspire Brands acquired Dunkin Brands in Dec-2020 at 24.6x EBITDA, the highest acquisition multiple for restaurant acquisitions in the past decade. However, Dunkin Brands EBITDA margin was ~36%, much higher than DNUT at ~13%.
This is an extensive report that compares DNUT’s valuation versus competitors, including to QSR, MCD, YUM, KDP, JACK, WEN, SBUX, DPZ and PZZA. It also explores DNUT’s business model, expansion plans and flags the company’s use of supply chain financing.
We also held a 15-minute webinar following up the report:
Replay: Krispy Kreme's Sugar High: Understanding its positioning in the restaurant industry
ACCOUNTING ALERT - May 27, 2021
Global Marketplaces companies:
Dada Nexus, Uber, Lyft, Airbnb, Deliveroo, Deliver Hero, DoorDash, Grab, Just Eat Takeaway, Meituan and Pinduoduo
Not All Revenues Are Created Equal
(only clients may read the report)
Our review of consumer marketplace companies concludes that accounting for incentive programs and promotional activities is inconsistent across the sector, which compromises comparative analysis and valuations. Specifically, the classification of customer incentives and/or discounts as either a reduction to revenue or an increase in sales and marketing expenses can have a marked impact on valuation multiples.
When normalized for incentives in the group, it lowered revenues by 4% for Airbnb, 7% for Lyft, 8% for Meituan, 22% for Uber and 32% for Dada.
Dada Nexus’ EV/Sales multiple, based on reported revenue, is 5x. However, if adjusted to exclude incentives and reflect gross-to-net recognition, Dada Nexus’ EV/Sales multiple catapults to 14x.
ACCOUNTING ALERT - April 22, 2021
U.S. Residential Solar Leasing Sector:
• Sunrun Inc. (RUN), including recently acquired Vivint Solar Inc. (VSLR)
• Sunnova Energy International Inc. (NOVA)
• SunPower Corporation (SPWR)
Blinded By the Light: Highlighting Solar Non-GAAP Risks
(only clients may read the report)
In this report, we examine non-GAAP metrics reported in the U.S. residential solar leasing sector.
These metrics are extensively used to value the solar companies. RUN, NOVA, and SPWR’s valuations appear overly optimistic. At the time our report was initially published, they had corrected 30%-40%. They have corrected about 20% further since then.
“They are by far the most complicated non-GAAP metrics that I’ve seen in my 15 years of experience at Veritas,” – Dimitry
We analyzed company and industry disclosures, including documents obtained through our FOIA requests from state Attorney General offices, the US Energy Information Administration data and had numerous discussions with industry participants. We challenge key assumptions that underpin these complex non-GAAP calculations, such as renewal rates, default rates and discount rates. Our analysis reveals common non-GAAP metrics used by U.S. solar leasing companies, such as Gross Earning Assets (GEA), Net Earning Assets (NEA) and Net Present Value (NPV), could be overstated by 20%-70%.
Our analysis reveals common non-GAAP metrics used by U.S. solar leasing companies, such as Gross Earning Assets (GEA), Net Earning Assets (NEA) and Net Present Value (NPV), could be overstated by 20%-70%.
We also held a special 60-minute in-depth webinar on this report:
Replay: Seeing Through the Glare A Study of Non-GAAP Metrics in the Residential Solar Industry (clients only).