A123 Systems (AONE): What Cramer didnt tell you about todays ‘Hot IPO’
Thursday, September 24, 2009 19:14
It must be nice to be a huge conglomerate like General Electric. After all, you can drum up support for a meaningless war through one subsidiary (NBC/MSNBC) and then reap the financial benefits of that war through another. You can even invest in a company which has yet to turn a profit as your media network hypes up demand for that company’s IPO. How can you loose?
A123 Systems (AONE) made its public debut today and climbed 50% above the initial offering price after getting the thumbs up from NBC’s Mad Money host Jim Cramer who hailed it as the “Hottest IPO of 2009.”
Citing the the “incredible growth” in the the automotive lithium-ion battery market , Cramer pitched the stock in typical stock broker “story-telling” fashion as he touted the merits of the industry which, he says, will grow from $30 million to $74 billion in 10 years. Though Cramer’s growth expectations for the industry may be impressive, the company is anything but.
Losing Money
A123 Systems was founded in 2001 and has NEVER turned a profit. In the past 6 months the company has reported a $40 million loss on $43 million in revenue. Let me repeat that – The company had revenues of $43 million and reported a loss of $40 million. The past 6 months were no anomaly either. In its 8 years of existence, the company has lost $146 million on $168 million in revenues.
Major Lawsuit
Cramer neglected to tell his viewers that the company is being sued for patent infringement by the University of Texas who claims the technology in one of A123 leading batteries was invented and patented by John Goodenough, a scientist and professor working at the school’s material science and engineering department.
In a Sept. 22 regulatory filing, A123 said it could be forced to pay “substantial damages” if the case isn’t resolved in its favor. “In addition, an adverse ruling could cause us, and our customers, development partners and licensees, to stop, modify or delay activities in the United States such as research, development, manufacturing and sales of products based on technologies covered by these patents,” A123 said in the filing.
Conflict of Interest
Noticably absent from Cramers pitch was the conflict of interest which, one would think, should have prevented Cramer from speaking about the stock at all.
Cramer works for General Electric, the parent company of NBC and MSNBC. He appropriately makes mention of the relationship between his network and GE whenever he mentions his parent company (which he also holds considerable shares in).
In April of this year, GE made its SEVENTH investment in A123 systems. GE is A123’s largest investor and owns a 10% stake in the company. A123 even has a GE executive on its board of directors. Mark Little, GE’s Senior Vice President and Director GE Global Research, joined A123’s board of directors.
Would A123 have been a “Hot IPO” if it weren’t for the GE sponsored promotion? How often does a company, with a record of accelerating losses, jump 50%+ in value in a single day? It will be interesting to see where the stock goes from here and particularly after the 30-day lockup period, when investors will be able to short the stock.
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F.L. Ross says:
September 29th, 2009 at 8:34 am
When I was analyzing the Li-ion industry 3-4 years ago the market was JPY 700 billion. All of this is of course electronics with mobiles and laptops dominating. I tried to measure the impact of automotive if it change to Li-ion from NiMH (which keeps being postponed) and HEV takes 10% market share of the entire auto industry (which was much larger back then) then it would have a minor impact on the entire Li-ion marketplace. It’s been a long time so I am not clear on the numbers but HEV impact on Li-ion was projected to be negligible thru 2013 and even with more optimistic growth forecasts like 10% it would still be smaller than power tools. And I wonder what the basis is for $74 billion? The entire market is going to be Chevy Volts for $50k a car? $74 billion is ballpark $6k per car for heaven’s sake. If Li-ion is going to become viable for mass market cars then the price has to drop substantially. A123 makes an excellent battery for power tools…… that should be the basis for its valuation.
SL says:
October 5th, 2009 at 3:49 pm
When I was analyzing the Li-ion industry 3-4 years ago the market was JPY 700 billion. All of this is of course electronics with mobiles and laptops dominating. I tried to measure the impact of automotive if it change to Li-ion from NiMH (which keeps being postponed) and HEV takes 10% market share of the entire auto industry (which was much larger back then) then it would have a minor impact on the entire Li-ion marketplace. It’s been a long time so I am not clear on the numbers but HEV impact on Li-ion was projected to be negligible thru 2013 and even with more optimistic growth forecasts like 10% it would still be smaller than power tools. And I wonder what the basis is for $74 billion? The entire market is going to be Chevy Volts for $50k a car? $74 billion is ballpark $6k per car for heaven’s sake. If Li-ion is going to become viable for mass market cars then the price has to drop substantially. A123 makes an excellent battery for power tools…… that should be the basis for its valuation.