Can you still be a genius if your viewpoint is the same as everybody else in the market? Asking for a friend.
You will know that I wrote about Getswift previously. In that post I focused a lot on the company’s deal with Amazon. I made the silly mistake of assuming that the company’s other contracts were real. According to AFR, they are not.
You should read that AFR article. Go buy the AFR. Buy two. It’s a pretty damning piece of journalism, and it plays my favourite game, He Said She Said.
What Getswift said:
Fantastic Furniture: “Getswift…. is pleased to announce that it has signed exclusive commercial multi-year agreements with BETTA Home Living and Fantastic Furniture.”
Fruit Box Group: “The Fruit Box Group…signs up to an exclusive 3 year contract with GetSwift’s last-mile delivery services solution… Exclusive contract projected at more than 7,000,000+ total aggregate deliveries.“
Commbank: “GetSwift estimates the deal will result in over 257,400,000 deliveries… Rollouts will commence shortly to selected markets with a full national deployment expected to be in place in 2017.”
What AFR says actually happened:
Fantastic Furniture: “They came and presented their software and we did a 30-day trial. But at the end of the trial we said thanks, but no thanks.”
The Fruit Box Group: “We tested the product and it didn’t go beyond the pilot stage.” Whoops, 7m deliveries gone.
Commbank: “The GetSwift application is not yet in pilot phase, so until we are comfortable with the performance of the solution we are unable to comment any further. The update made by GetSwift to the market on 18 December was not approved by Commonwealth Bank,” a company spokesman said, adding it had signed a contract with the company.”
These are all contracts that Getswift had said that it had won. (I recently criticised the December 18 announcement for how long it would take to show revenues.)
At the very least this involves incredibly poor communication to the market, especially the apparent non-existence of the Fruit Box contract. AFR is especially juicy:
“In relation to The Fruit Box Group, Mr Macdonald said “it’s not material now”, after saying the contract had been pulled immediately after GetSwift made the statement to the market.”
I strenuously disagree. 7m deliveries is extremely material to a company with the revenues of Getswift and it was even more material at the time of the original announcement in February 2017. This surely invites a class action from shareholders and possibly legal redress actions from those who participated in both of the capital raisings. Regulatory attention from ASIC is virtually guaranteed.
(I explain the ‘materiality’ of the Fruit Box contract more in this post. I think it is almost 100% certain that this contract was material.)
Rule #1 of the capital markets textbook says:
You cannot raise capital from people if you have not disclosed material facts about your business.
For Getswift, much hinges on the ‘materiality’ of that contract, as well as the possibility of other exaggerations that may be lurking.
In my opinion, the AFR article calls into question literally every other deal Getswift has ever announced, especially since some customers could not be reached or declined to comment on their contracts. Amazon is the elephant in the room here, but there’s Yum! Brands, NA Williams, Takeaway.com, and all the rest. It all comes down to trust and if you cannot trust a company to disclose appropriately, especially when it has a titanic market capitalisation relative to sales, it’s uninvestible.
There are also several implications for Getswift’s business model that jumped out at me.
The business model
I hypothesised about this a fair bit in my previous piece and today’s AFR article appears to provide partial confirmation. Getswift has so far seemingly failed to land contracts with the big logistics businesses (Fruit Box, Fantastic Furniture) etc. It has however been popular among franchisees and smaller businesses that lack the resources to develop their own platform. Red Rooster restaurants and Tuckerfox spoke favourably of the software and use it regularly.
Extrapolating this I am extremely doubtful that Getswift has a substantive contract as a serious logistics service provider for Amazon. Probability-wise – remembering there is no way of knowing for sure due to the company’s limited disclosure – I think it is more likely that it will be some sort of arrangement to offer Getswift’s software to third party customers who can’t develop their own software. Maybe it’s a deal to run the Amazon smoko trucks like I suggested? That’s assuming that the Amazon contract announcement didn’t ‘get swifted’ and get released before it entered the pilot stage.
Heck, maybe the Amazon contract has been withdrawn and it’s not material so it doesn’t have to be disclosed! Remember, “…due to the terms of the agreement the number of deliveries this agreement may generate is currently not determinable.”
I mean, fuck.
The mention of acquisitions in that AFR article is another glaring red flag in my opinion. Getswift is supposed to be getting ‘geometric’ revenue growth growing at 50% per quarter. Rapidly growing, successful software companies do not typically need to make acquisitions. Rather they typically pour all of their cash back into R&D, marketing, support systems. Typically the infrastructure to support future growth has to be built out well in advance of that future growth, so heavy cash outflows proportional to revenue are common.
This also means that conserving the cash pile is quite important and growing SaaS companies can have fairly limited visibility of when they might actually become cashflow positive (usually it’s some nebulous X years in the future). As others have noted previously, Getswift has virtually zero R&D and support infrastructure – this is what the $75m capital raising was for – and so I would expect their expenditure to be very heavy and their visibility of CF break-even very low. As a result, acquisitions seem risky, given the typical SaaS company likely has no idea of when it will become profitable.
The company’s public narrative is that Getswift is a very successful junior SaaS product growing rapidly, with great customer reviews and a huge untapped market. This type of company should not need to be acquiring anything, especially not so early in its journey when management should be ruthlessly focused on the core business. Frankly, Getswift has so little infrastructure (although it has been hiring actively recently) that I would expect management to be run off their feet.
That’s even before you get into the boilerplate risks of acquisitions. Sure the industry might be fragmented, but if the valuation of Getswift is anything to go by, it’s not exactly full of bargains. A small acquisition (<$20m) might make sense, but if Getswift makes, say, a ~$100m acquisition, that will be a screaming red siren in my opinion – especially if acquired revenues are multiples of their own.
Personally I think you can forget trying to do proper analysis here. To my mind, the other concerns with lack of disclosure and the disturbing report from AFR today outweigh literally everything else positive about Getswift.
I’ll wrap it up there, but first, a nod to the myriad other people who were quick to call out problems with Getswift. Seaforth Ben, Steve Johnson at Forager, Totus Capital, and one individual who asked not to be named but as far as I know was the very first to point out that the emperor had no clothes.
I think Getswift is in deep shit. The AFR has scented blood and so have the short sellers. Do journalists become more savage if their publication has previously posted glowing reviews of a company? I look forward to seeing how it plays out.
I have no position in any companies mentioned in this post. I do not intend to take an investment position of any kind in Getswift. I have no relationship whatsoever with the AFR or anybody employed by, or consulting to, Getswift. This is a disclosure and not a recommendation.