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Ideanomics (NASDAQ:IDEX) stock seems like a potentially huge winner. After all, Ideanomics has positioned itself to grow in both the blockchain and electric vehicle industries.
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I’m as big a bull on those two sectors as anyone. And so you might expect I’d be a bull on IDEX stock as well.
That’s not the case, however. I see a number of concerns with Ideanomics — among them the precise fact that the company is targeting two very different industries. Throughout its history, Ideanomics has chased the ‘hot’ sector while failing to deliver. I’d be very worried that history will repeat.
How We Got Here
The first concern with Ideanomics is that it hasn’t been either a blockchain or an EV play for very long. The blockchain pivot came in 2017, after an attempt to develop a streaming video business in China (known as You on Demand) fizzled out. The move to clean energy, via the company’s Mobile Energy Group, followed in 2019.
In both cases, it’s not hard to get the sense that Ideanomics was simply chasing the ‘hot’ sector. It hasn’t had much success in either. The blockchain business wound up with a consulting agreement in 2019 in which it was paid in a cryptocurrency known as GTBDollar.
Ideanomics said in both an SEC filing and on a conference call that it had converted GTB into bitcoin and Ethereum, but later walked back that statement. In fact, in the middle of 2019, the company claimed to own “2,409 Bitcoins and 17,460 Ethereum.” At the moment, those holdings would be worth over $100 million.
Yet the following quarter, Ideanomics walked back that statement. It clarified that its holdings (which had somehow increased over the preceding three months) “do not represent a direct holding” of either cryptocurrency. Its GTBDollar holdings proved to be worthless.
At the moment, investors seem more enthused about MEG’s efforts in China. But so far, the company hasn’t had much success there, either. In the third quarter, Ideanomics did have record revenue of over $10 million. It had an operating loss of $12 million.
The New Deals and the Old Deals
Now, an investor could look at the losses and argue that Ideanomics simply is early in its growth cycle. After all, there is no shortage of unprofitable companies with valuations well above Ideanomics’ current market capitalization of $650 million. In addition, the company has made a pair of acquisitions of late which appear to have stoked investor optimism.
Neither case really holds. Investors need to understand what MEG is, at least for now: purely a middleman. It buys vehicles (most, but not all, of which are electric vehicles) from manufacturers and generates a small markup in selling those vehicles to taxi operators and the like.
It’s not a profitable business. Gross margins were less than 7% in the third quarter. Nor is it a scalable business, either.
As for the acquisitions, we’ll see. The acquisition of title company Timios Holdings, which closed this month, is intriguing. But it’s not clear how the business fits into the supposed ‘fintech’ business which has generated less than $1 million in revenue so far this year.
Ideanomics then announced the purchase of Wireless Advanced Vehicle Electrification, or WAVE, for $50 million in cash and stock. But the purchase price itself raises concerns. This is a market where EV charging companies are valued in the billions off often-minimal revenues. Why is WAVE, with supposedly advanced wireless charging solutions, settling for a relatively paltry price?
The Case Against IDEX Stock
There’s also the problem that Ideanomics’ past acquisitions and efforts have generally struck out. In 2018, it acquired FinTalk for $5.7 million and promptly wound the business down. ‘Influencer’ platform Grapevine was acquired and then supposedly sold last year, but according to Securities and Exchange Commission filings remains on the books. It’s done little to contribute to Ideanomics’ results.
The Delaware Board of Trade defaulted on a government loan. Ideanomics made little progress on Fintech Village, a supposed blockchain innovation center, in Connecticut, and is now selling the property.
Maybe this time is different. Perhaps WAVE really becomes a leader in EV charging, or the blockchain efforts somehow bear fruit.
But there’s an old saw that “this time is different” are the four most dangerous words in investing. It’s an old saw for a reason. This is a company that’s constantly chased the ‘hot’ thing: streaming video, blockchain, electric vehicles, EV charging. Every time, it’s failed to deliver. Every time, shareholders paid the price.
With IDEX stock gaining once again, clearly the optimism has returned. I hope the end result isn’t the same, though I fear it will be.