Cyberdyne (7779) and Short Sellers

Not gone unnoticed in Intel’s (INTC US) US$63/share bid for Mobileye (MBLY US) ($60.96 as close of play on Mar 14th; YTD the stock has risen by 60%) is the fact that just under twelve months ago, Mobileye was the subject of a high profile short sell report by Citron Research who valued the stock at US$11/shr; a view the firm unfortunately repeated only last month. Now, unless shareholders of Intel can convince management somehow to pull that bid, this is one of those terminal situations that sees an enormous loss locked in (at the time of both reports, Mobileye’s shares were just under US$50).  
Now, there is no shortage of market commentators who think that Intel overpaid for Mobileye, and it could be argued that Citron Research were unlucky, as only a handful of companies could have paid US$15bil for Mobileye, and for one of them to have actually paid that much is bad luck. However, this deal goes to the heart of an issue PSA has raised before, which is the blurring of the lines between a “sell” report and a “short sell” report.  

Were Citron a traditional research provider which had issued a “sell” report on Mobileye, it could argue that this bid justified its view. In this report we discuss:

• That you could argue that the correct call for Mobileye was a sell – up until events caused the probability matrix to collapse.
• Reasons why don’t think it was a short-sell situation and a read-across to why we didn’t agree with Citron’s short-sell call on Cyberdyne (7779)…
• …given neither Cyberdyne nor Mobileye. is in danger of going bankrupt any time soon
• Tech stock valuations and lessons from Facebook (FB US)
• If regulations were relaxed, Cyberdyne argues it could be a billion-$ company
• Cyberdyne’s impressive 3Q FY16 earnings would have also worried the short sellers
• It is obviously better if you can increase profits / reduce losses with increased sales, and that is what is happening at Cyberdyne
• We now have an inkling of what the floor on the stock is based on the information available at the time of the short sell report, and we argued that the stock was essentially the classic

“Avoid”, as it was nigh on impossible to call either way. 
When the short-sell reports on Cyberdyne came out, we argued that the stock was essentially the classic “Avoid”, as it was nigh on impossible to call either way (great potential on the one hand, extraordinarily expensive on the other), but if forced into making a call, we would opt for “Sell”. While the basic situation is little changed, what change there is has been is in a positive direction and we are modelling for Cyberdyne to turn into the black in FY18. Consequently, if it was hard for PSA to put a “sell” on the stock before, it is even harder now – and we are amongst the more pessimistic commentators on the company's outlook.