Muddy Waters Short Seller Casino

PARIS-Casino Groupe SA rejected accusations leveled at the French supermarket operator by short-selling firm Muddy Waters LLC in a lengthy response filed Monday to the French market regulator. A new video shows a man accused of impersonating a Wall Street Journal reporter in an effort to uncover information from prominent short-seller Muddy Waters and allegedly learn more about its strategy toward French retailer Casino Guichard-Perrachon SA. Groupe Casino, as the supermarket chain operator.

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TL; DR: Intrum shares closed about 23% lower today, following a disclosure of a 0.5% short position by Muddy Waters Capital.*

• Muddy Waters Capital disclosed a 0.5% short in this Swedish provider of credit management services and solutions (such as, debt collection and debt surveillance). Disclosed short position is dated 2020-03-20 and translates to about €6m at a market cap of €1.2b;
• Intrum shares closed about 23% lower and have reached new multi-year lows today;
• Intrum has been in considerable short selling focus throughout 2018 and 2019 and currently tops our list of the most shorted stocks in Sweden. Furthermore, with 11.22% short interest and according to our records, this is also the most shorted stock in business support services sector in EU;
• As of time of writing this note, Muddy Waters did not publish a related report and we do not know if one will be published. In most of previous cases, such short disclosure were accompanied by activist short reports (Burford, Casino, IQE, Stroer). However, in case of Solutions 30, Muddy Waters did not publish a report and did not elaborate why they shorted this stock. They just commented: 'Whose investors are better off - those who can evaluate our arguments, or those whose stock drops but they don't understand why?'(ref. Twitter). Disclosure of Solutions 30 short, was followed by an about 25% lower close on that day. Similarly, Muddy Water disclosed in October 2019 a short position in Corestate Capital Holdings, without elaborating why. The shares closed about 19% on the day when this short disclosure became public.
• Muddy Waters is a ninth money manager holding a big short against Intrum. In March, we noted another new big bet against this stock, a 1.02% short position by Oceanwood Capital Management.

Development of short positions in Intrum AB:

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* Note: Presented short selling data is based on European net short position data which is disclosed to the public when short positions at least equal to 0.5% of company issued share capital. „Big short“ refers to a short position above 0.5% of company issued capital. Presented data and analytics is as of available on 2020-03-23.

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(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.

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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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