Muddy Waters Short Seller Casino
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(Bloomberg) -- To some short sellers, GSX Techedu Inc. is an “almost completely empty box,” with numbers that are too good to be true. To many analysts -- including those at Credit Suisse Group AG, which led the company’s initial public offering -- the Chinese online education firm remains a buy, and detractors just don’t understand the business model.Popular Searches
GSX is an after-school tutoring platform whose American depositary receipts began trading last June and had more than quadrupled earlier this year, boosting the fortune of billionaire chairman and founder Larry Chen.
Then, in late February, Grizzly Research started questioning GSX’s results. Citron Research followed in April, accusing the company of overstating revenue by as much as 70%. In early May, Scorpio VC concluded the financial data “is not up to the test.” Muddy Waters joined the fray last week, claiming at least 70% of the firm’s users are robots and calling it a massive loss-making business. The ADRs have tumbled 34% from their Feb. 24 peak.
Muddy Waters Joins Short Sellers Pounding Away at GSX To some short sellers, GSX Techedu Inc. Is an “almost completely empty box,” with numbers that are too good to be true.
*Research firm Muddy Waters on Wednesday released a “short report” targeting Chinese livestreaming and entertainment company JOYY Inc, calling it fraudulent for faking 90% of traffic on livestreaming service YY Live, which was just acquired by Baidu for USD 3.6 billion.
*Short-selling firm Muddy Waters on Thursday rejected the preliminary findings of a probe by France’s AMF financial regulator into its criticism of retailer Casino. ’We vehemently disagree.
*The comment from the short-seller comes days after Chinese search engine giant Baidu Inc decided to acquire JOYY’s domestic streaming platform YY Live for $3.36 billion in cash. Muddy Waters said the deal announcement came just as it was preparing to reveal that its year-long investigation shows YY Live is an “ecosystem of mirages”.
Chen, 48, shot back on social media.
“Muddy Waters did some homework for the report,” he wrote last week in a post on Weibo, China’s version of Twitter. “It’s just a pity that they didn’t understand the business model of our online live large class.”Outperforming Peers
At GSX, an instructor uses a web platform to teach several hundred students with the help of tutors -- a format that’s increasingly appealing in a world with fewer social interactions. Muddy Waters’ misunderstanding may be because it didn’t try its live courses, or it did and ignored part of the process, a GSX spokeswoman wrote in an email.
Despite their recent swoon, the ADRs are still up 37% this year through Wednesday, outperforming peers New Oriental Education & Technology Group Inc. and TAL Education Group. That has helped add almost $830 million to Chen’s fortune, now worth $3.2 billion, according to the Bloomberg Billionaires Index.© Bloomberg GSX’s ADRs are still up for the year
The spotlight on Chinese companies listed in the U.S. intensified in early April with an accounting scandal at Luckin Coffee Inc., which several short sellers noted in presenting their arguments against GSX.
In its report, Muddy Waters said Chen pledged at least $318 million of ADRs to banks, putting investors at risk if the margin lenders were to sell the securities. Chen said in April he pledged 5.1 million ADRs -- currently worth about $152 million -- to Credit Suisse for a $50 million loan facility, and the GSX spokeswoman said he hadn’t made additional pledges since then.
“No other senior management has pledged any shares, as far as the company is aware,” she added.
A Hong Kong-based spokeswoman at Credit Suisse declined to comment. The Swiss bank, which helped several other Chinese companies go public in the U.S., posted a fivefold jump in loan-loss provisions at its Asia-Pacific unit, primarily because of a default by Luckin’s founder, Lu Zhengyao. People familiar with the matter have said it is now reviewing how it lends to billionaire clients at the international wealth-management division.
Each time Muddy Waters exposed alleged wrongdoing at a Chinese company, the usual response is that the short seller doesn’t understand the business, Chief Executive Officer Carson Block wrote in an email, maintaining GSX is deceiving investors.
GSX’s response: “Muddy Waters is bluffing.”Teen Teacher
Born in a poor village in northern China, Chen’s father helped him enroll in a tuition-free vocational training school for teachers. He later obtained a master’s degree and doctorate in economics from Renmin University of China, and completed a general manager program at Harvard Business School in 2005, a company filing shows.
Chen started his career as a middle school teacher at age 17, according to GSX’s website. He joined New Oriental Education in 1999, eventually becoming executive president before leaving to start GSX in 2014. The Beijing-based provider of online K-12 courses reported 2.1 billion yuan ($294 million) in revenue last year, a fivefold increase from 2018, with 2.7 million enrollments and students in more than 190 countries.
Most Wall Street analysts tracked by Bloomberg remain bullish on GSX, with 12 of them recommending that investors buy the ADRs, compared with one sell rating. Terry Weng of Blue Lotus Capital is among the optimists, saying short sellers misunderstand the online big-class business. GSX has higher penetration than peers in low-tier Chinese cities, with better product differentiation and market channels. He estimates the market share of the online large-class, after-school tutoring industry will reach 20% in five years, up from 3.5% now, and generate 200 billion yuan in revenue.
Meanwhile, Nasdaq Inc. is looking into IPO rules that would make it harder for some Chinese companies to go public on the exchange. Since the Luckin scandal, billionaire Zhang Bangxin’s TAL disclosed that an employee had wrongly inflated sales, and more short sellers have targeted stocks from the Asian nation trading in the U.S.
In his Weibo post last week, Chen said he is “surprised and confused” about short sellers’ attitude. “Don’t they care about their conscience and reputation?”
“Weakness and ignorance are not barriers to survival, but arrogance is,” Chen added, quoting the novel “Death’s End” by Chinese author Liu Cixin.
(Updates with Credit Suisse lending review in 11th paragraph, Chen’s fortune and stock moves throughout)
For more articles like this, please visit us at bloomberg.com
©2020 Bloomberg L.P. Pneu velo geant casino.Icons for live-streaming applications YY Inc.
(Bloomberg) — Chinese livestreaming video giant Joyy Inc. dismissed allegations of fraud by Muddy Waters’ Thursday, saying the short seller’s report was replete with errors and demonstrated an ignorance of the red-hot industry.
Joyy, which is selling its YY Chinese business to search giant Baidu Inc., said the 71-page Muddy Waters report issued Wednesday was confusing and full of generalizations about a format Joyy helped pioneer, now one of the fastest-growing segments of the world’s largest internet arena.
The stock was up more than 14% in pre-market trading Thursday, recouping some of the 26% selloff of the previous session that marked its biggest single-day decline. Muddy Waters called YY a “fraud tech company,” casting doubt over its sale to Baidu for $3.6 billion. The allegations now overshadow an acquisition intended to help Baidu catch up in the competitive arena of online entertainment after a late start in livestreaming video. Representatives of the company had no immediate comment.
Short sellers like Muddy Waters often conduct research on companies they suspect of being overvalued. They then sell borrowed stock in the target companies — known as “selling short” — expecting share values to fall when they publish their findings. Short sellers then buy target-company shares at lower prices to replace the borrowed stock and pocket the difference.
“Muddy Waters’ report is full of ignorance about the livestreaming industry and the livestreaming ecosystem,” Joyy said in a texted statement. “The report contains a large number of errors with unclear logic, confusing data and hasty generalizations.”
Joyy stopped short of directly rebutting the allegations in its brief statement.
Shares of livestreaming peers Momo Inc. and Douyu International Holdings Ltd., which operate similar business models, slid more than 4%. Baidu finished 1.3% lower amid a broader U.S. market decline.
Muddy Waters Research founder Carson Block earlier said Joyy’s livestreaming service YY is “guilty of bot forming, creating fake transactions and having fake users.” After a year-long investigation, Muddy Waters alleged evidence of revenue inflation: livestreamers who got paid during long periods of absence or inactivity; mismatches with local credit reports it obtained; and payments originating from company servers. Muddy Waters also disclosed it holds a short position in Joyy.
The tactics outlined in the Muddy Waters report aren’t intended to inflate revenue but to juice popularity among users, said Ke Yan, a Singapore-based analyst with DZT Research. The research company may be misjudging how common the practice was of initially using bots to generate interest, said Chen Da, executive director at Anlan Capital. It’s customary to try to goose numbers for livestreams in the hope they will draw in real users who would then contribute actual money, he said.
“You can’t really apply the research methods used to collect fraudulent evidence against real-economy or manufacturing firms to internet firms,” Chen said. Their “business model does pay off, and there is real cash flow brought in after the fakes ‘get the ball rolling.’”
Joyy may have to spend significant time and resources to dispute Muddy Waters’ allegations of fraud, which may be difficult to disprove quickly. This may involve internal reviews with independent committees and external advisers. In the meantime, the doubt cast into investors’ minds could be an overhang, and there may be uncertainty about the completion of the pending deal to sell YY Live to Baidu, said Vey-Sern Ling and Tiffany Tam, analysts at Bloomberg Intelligence.
With YY, Baidu was supposed to get a $1.8 billion business with 4 million paying users who splurge on virtual gifts to tip their favorite performers. The acquisition marked the search engine giant’s biggest effort to diversify revenue streams beyond advertising and tap consumer spending. Once the runaway leader in desktop search, Baidu is trying to adapt its business to the mobile era but is losing ground piecemeal to up-and-comers such as ByteDance and Kuaishou.
To compete for users and advertisers, Baidu’s core search app is morphing into a platform hosting a wide array of content from articles to videos, not unlike Tencent Holdings Ltd.’s WeChat. Its Netflix-style iQiyi Inc. — whose shares plunged in April after another short seller’s report — is also going head-to-head with services run by Tencent and Alibaba Group Holding Ltd.
Even before Muddy Waters questioned YY’s revenue model, analysts flagged its declining growth and market share losses to rivals like ByteDance Ltd.’s Douyin and Tencent-backed Bilibili Inc.
Started in 2005 as a chat tool for gamers, YY was among the pioneers of a way to monetize livestreaming by taking a cut of virtual gifts bestowed by fans. In 2014, its parent launched Twitch-style Huya Inc. using the same model. That unit was later spun off and is now in the midst of merging with DouYu International Holdings Ltd. to create a $10 billion game-streaming giant controlled by Tencent.
YY itself is now losing appeal to hotter formats like video-streaming platform Bilibili, the TikTok-like Kuaishou and TikTok’s Chinese twin Douyin — a problem also faced by Baidu’s own iQiyi. YY’s paying users actually declined 4.7% in the September quarter.
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(Bloomberg) -- To some short sellers, GSX Techedu Inc. is an “almost completely empty box,” with numbers that are too good to be true. To many analysts -- including those at Credit Suisse Group AG, which led the company’s initial public offering -- the Chinese online education firm remains a buy, and detractors just don’t understand the business model.Popular Searches
GSX is an after-school tutoring platform whose American depositary receipts began trading last June and had more than quadrupled earlier this year, boosting the fortune of billionaire chairman and founder Larry Chen.
Then, in late February, Grizzly Research started questioning GSX’s results. Citron Research followed in April, accusing the company of overstating revenue by as much as 70%. In early May, Scorpio VC concluded the financial data “is not up to the test.” Muddy Waters joined the fray last week, claiming at least 70% of the firm’s users are robots and calling it a massive loss-making business. The ADRs have tumbled 34% from their Feb. 24 peak.
Muddy Waters Joins Short Sellers Pounding Away at GSX To some short sellers, GSX Techedu Inc. Is an “almost completely empty box,” with numbers that are too good to be true.
*Research firm Muddy Waters on Wednesday released a “short report” targeting Chinese livestreaming and entertainment company JOYY Inc, calling it fraudulent for faking 90% of traffic on livestreaming service YY Live, which was just acquired by Baidu for USD 3.6 billion.
*Short-selling firm Muddy Waters on Thursday rejected the preliminary findings of a probe by France’s AMF financial regulator into its criticism of retailer Casino. ’We vehemently disagree.
*The comment from the short-seller comes days after Chinese search engine giant Baidu Inc decided to acquire JOYY’s domestic streaming platform YY Live for $3.36 billion in cash. Muddy Waters said the deal announcement came just as it was preparing to reveal that its year-long investigation shows YY Live is an “ecosystem of mirages”.
Chen, 48, shot back on social media.
“Muddy Waters did some homework for the report,” he wrote last week in a post on Weibo, China’s version of Twitter. “It’s just a pity that they didn’t understand the business model of our online live large class.”Outperforming Peers
At GSX, an instructor uses a web platform to teach several hundred students with the help of tutors -- a format that’s increasingly appealing in a world with fewer social interactions. Muddy Waters’ misunderstanding may be because it didn’t try its live courses, or it did and ignored part of the process, a GSX spokeswoman wrote in an email.
Despite their recent swoon, the ADRs are still up 37% this year through Wednesday, outperforming peers New Oriental Education & Technology Group Inc. and TAL Education Group. That has helped add almost $830 million to Chen’s fortune, now worth $3.2 billion, according to the Bloomberg Billionaires Index.© Bloomberg GSX’s ADRs are still up for the year
The spotlight on Chinese companies listed in the U.S. intensified in early April with an accounting scandal at Luckin Coffee Inc., which several short sellers noted in presenting their arguments against GSX.
In its report, Muddy Waters said Chen pledged at least $318 million of ADRs to banks, putting investors at risk if the margin lenders were to sell the securities. Chen said in April he pledged 5.1 million ADRs -- currently worth about $152 million -- to Credit Suisse for a $50 million loan facility, and the GSX spokeswoman said he hadn’t made additional pledges since then.
“No other senior management has pledged any shares, as far as the company is aware,” she added.
A Hong Kong-based spokeswoman at Credit Suisse declined to comment. The Swiss bank, which helped several other Chinese companies go public in the U.S., posted a fivefold jump in loan-loss provisions at its Asia-Pacific unit, primarily because of a default by Luckin’s founder, Lu Zhengyao. People familiar with the matter have said it is now reviewing how it lends to billionaire clients at the international wealth-management division.
Each time Muddy Waters exposed alleged wrongdoing at a Chinese company, the usual response is that the short seller doesn’t understand the business, Chief Executive Officer Carson Block wrote in an email, maintaining GSX is deceiving investors.
GSX’s response: “Muddy Waters is bluffing.”Teen Teacher
Born in a poor village in northern China, Chen’s father helped him enroll in a tuition-free vocational training school for teachers. He later obtained a master’s degree and doctorate in economics from Renmin University of China, and completed a general manager program at Harvard Business School in 2005, a company filing shows.
Chen started his career as a middle school teacher at age 17, according to GSX’s website. He joined New Oriental Education in 1999, eventually becoming executive president before leaving to start GSX in 2014. The Beijing-based provider of online K-12 courses reported 2.1 billion yuan ($294 million) in revenue last year, a fivefold increase from 2018, with 2.7 million enrollments and students in more than 190 countries.
Most Wall Street analysts tracked by Bloomberg remain bullish on GSX, with 12 of them recommending that investors buy the ADRs, compared with one sell rating. Terry Weng of Blue Lotus Capital is among the optimists, saying short sellers misunderstand the online big-class business. GSX has higher penetration than peers in low-tier Chinese cities, with better product differentiation and market channels. He estimates the market share of the online large-class, after-school tutoring industry will reach 20% in five years, up from 3.5% now, and generate 200 billion yuan in revenue.
Meanwhile, Nasdaq Inc. is looking into IPO rules that would make it harder for some Chinese companies to go public on the exchange. Since the Luckin scandal, billionaire Zhang Bangxin’s TAL disclosed that an employee had wrongly inflated sales, and more short sellers have targeted stocks from the Asian nation trading in the U.S.
In his Weibo post last week, Chen said he is “surprised and confused” about short sellers’ attitude. “Don’t they care about their conscience and reputation?”
“Weakness and ignorance are not barriers to survival, but arrogance is,” Chen added, quoting the novel “Death’s End” by Chinese author Liu Cixin.
(Updates with Credit Suisse lending review in 11th paragraph, Chen’s fortune and stock moves throughout)
For more articles like this, please visit us at bloomberg.com
©2020 Bloomberg L.P. Pneu velo geant casino.Icons for live-streaming applications YY Inc.
(Bloomberg) — Chinese livestreaming video giant Joyy Inc. dismissed allegations of fraud by Muddy Waters’ Thursday, saying the short seller’s report was replete with errors and demonstrated an ignorance of the red-hot industry.
Joyy, which is selling its YY Chinese business to search giant Baidu Inc., said the 71-page Muddy Waters report issued Wednesday was confusing and full of generalizations about a format Joyy helped pioneer, now one of the fastest-growing segments of the world’s largest internet arena.
The stock was up more than 14% in pre-market trading Thursday, recouping some of the 26% selloff of the previous session that marked its biggest single-day decline. Muddy Waters called YY a “fraud tech company,” casting doubt over its sale to Baidu for $3.6 billion. The allegations now overshadow an acquisition intended to help Baidu catch up in the competitive arena of online entertainment after a late start in livestreaming video. Representatives of the company had no immediate comment.
Short sellers like Muddy Waters often conduct research on companies they suspect of being overvalued. They then sell borrowed stock in the target companies — known as “selling short” — expecting share values to fall when they publish their findings. Short sellers then buy target-company shares at lower prices to replace the borrowed stock and pocket the difference.
“Muddy Waters’ report is full of ignorance about the livestreaming industry and the livestreaming ecosystem,” Joyy said in a texted statement. “The report contains a large number of errors with unclear logic, confusing data and hasty generalizations.”
Joyy stopped short of directly rebutting the allegations in its brief statement.
Shares of livestreaming peers Momo Inc. and Douyu International Holdings Ltd., which operate similar business models, slid more than 4%. Baidu finished 1.3% lower amid a broader U.S. market decline.
Muddy Waters Research founder Carson Block earlier said Joyy’s livestreaming service YY is “guilty of bot forming, creating fake transactions and having fake users.” After a year-long investigation, Muddy Waters alleged evidence of revenue inflation: livestreamers who got paid during long periods of absence or inactivity; mismatches with local credit reports it obtained; and payments originating from company servers. Muddy Waters also disclosed it holds a short position in Joyy.
The tactics outlined in the Muddy Waters report aren’t intended to inflate revenue but to juice popularity among users, said Ke Yan, a Singapore-based analyst with DZT Research. The research company may be misjudging how common the practice was of initially using bots to generate interest, said Chen Da, executive director at Anlan Capital. It’s customary to try to goose numbers for livestreams in the hope they will draw in real users who would then contribute actual money, he said.
“You can’t really apply the research methods used to collect fraudulent evidence against real-economy or manufacturing firms to internet firms,” Chen said. Their “business model does pay off, and there is real cash flow brought in after the fakes ‘get the ball rolling.’”
Joyy may have to spend significant time and resources to dispute Muddy Waters’ allegations of fraud, which may be difficult to disprove quickly. This may involve internal reviews with independent committees and external advisers. In the meantime, the doubt cast into investors’ minds could be an overhang, and there may be uncertainty about the completion of the pending deal to sell YY Live to Baidu, said Vey-Sern Ling and Tiffany Tam, analysts at Bloomberg Intelligence.
With YY, Baidu was supposed to get a $1.8 billion business with 4 million paying users who splurge on virtual gifts to tip their favorite performers. The acquisition marked the search engine giant’s biggest effort to diversify revenue streams beyond advertising and tap consumer spending. Once the runaway leader in desktop search, Baidu is trying to adapt its business to the mobile era but is losing ground piecemeal to up-and-comers such as ByteDance and Kuaishou.
To compete for users and advertisers, Baidu’s core search app is morphing into a platform hosting a wide array of content from articles to videos, not unlike Tencent Holdings Ltd.’s WeChat. Its Netflix-style iQiyi Inc. — whose shares plunged in April after another short seller’s report — is also going head-to-head with services run by Tencent and Alibaba Group Holding Ltd.
Even before Muddy Waters questioned YY’s revenue model, analysts flagged its declining growth and market share losses to rivals like ByteDance Ltd.’s Douyin and Tencent-backed Bilibili Inc.
Started in 2005 as a chat tool for gamers, YY was among the pioneers of a way to monetize livestreaming by taking a cut of virtual gifts bestowed by fans. In 2014, its parent launched Twitch-style Huya Inc. using the same model. That unit was later spun off and is now in the midst of merging with DouYu International Holdings Ltd. to create a $10 billion game-streaming giant controlled by Tencent.
YY itself is now losing appeal to hotter formats like video-streaming platform Bilibili, the TikTok-like Kuaishou and TikTok’s Chinese twin Douyin — a problem also faced by Baidu’s own iQiyi. YY’s paying users actually declined 4.7% in the September quarter.
Support quality journalism in China. Subscribe to Caixin Global starting at $0.99.Muddy Waters Short Seller Casino BuffetGallery: Tai Chi Wins UNESCO RecognitionMuddy Waters Short Seller Casino Atlantic City1Exclusive: Fosun to Import 7.2 Million Doses of BioNTech-Pfizer Vaccine2Cover Story: The Daunting Challenge of Immunizing the World3Milken Institute 2020 Asia Summit: China Investment Opportunities and The Dual Circulation Strategy (Video)4Exclusive: China Plans New Disease Control Agency in Covid-19 Aftermath5China’s Latest Economic Buzzword: ‘Demand-Side Reform’
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