Shares of tiny ride-hailing company Facedrive Inc. have climbed 50 per cent over the past three days after falling sharply in previous days, continuing a pattern of dramatic trading activity that has drawn the attention of short-sellers who argue the company’s market value is far out of line with its business activity.
The Richmond Hill, Ont.-based company has a $1-billion market capitalization, making it one of the most valuable names on the TSX Venture Exchange. But with only $93,000 in revenue in its most recent quarter, it is also one of the most expensive stocks relative to the amount of money it generates.
Facedrive owns a ride-hailing app and an assortment of other technology and e-commerce assets, including a COVID-19 tracing app, a quiz game app and an online store that exclusively sells Facedrive and Bel-Air Athletics-branded clothing. The Bel-Air brand is backed by actor Will Smith.
In its most recent quarter, the company reported $93,615 in revenue and a $9.4-million loss. Facedrive revenue comes almost entirely from its ride-hailing app, which launched in 2017 and is operational in nine cities in Ontario, according to company filings. This line of business, however, has taken a hit this year. The app generated $147,200 in “gross fees from rides” in the three months ended June 30, down 60 per cent from the same quarter last year and down 82 per cent from the preceding quarter.
“This decrease is primarily attributable to the decrease in number of rides during the COVID-19 global pandemic,” the company said in a recent filing. Facedrive did not respond to a request for comment.
Since the end of the quarter, the company has made a push into food delivery, acquiring the customer list of bankrupt Foodora Inc. for $500,000 and buying a startup called Food Hwy Canada Inc. for $1.5-million in cash, plus shares that were valued at $7.6-million at the time of the transaction.
Facedrive shares have traded frenetically since the company went public last year through the reverse takeover of a shell company. The company’s share price rose more than 1,000 per cent, hitting $24 in July, before falling to around $11. Over that period, the company has been the subject of heavy promotion on websites that conduct paid stock promotion campaigns such as Oilprice.com.
The rapid stock price appreciation has made Facedrive a target for short-sellers, who look to profit from share price drops. In July, it was the subject of a short report by Hindenburg Research that highlighted the company’s fragmented business model, extensive stock promotion and large payments to firms owned by the company’s chief executive Sayan Navaratnam.
The company’s share price run-up is attributable, at least in part, to its tight float. The reverse takeover transaction that took FaceDrive public was structured so that most of the shares would be locked up, then released in batches over the next few years. Currently only 29.5 per cent of the company’s shares can be traded.
A large portion of the company is also controlled by Mr. Navaratnam, who owns 34.75 per cent, and co-founder Imran Khan, who owns 25.3 per cent.
The lock-up has sparked at least one lawsuit by an early backer, Nauman Kureshy, who claims that the company refused to register his shares when Facedrive went public because he refused to sign a lock-up agreement. The plaintiff is claiming $1.7-million in damages and demanding that the company register 340,947 shares in his name.
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Mark Rendell