Hedge fund Spruce Point Capital said it has bet against the shares of a company Facebook uses to screen controversial message chats, claiming the firm has a pattern of painting an overly rosy picture of its business.
TaskUs is one of more than 10 outside moderators that Facebook currently contracts to determine, based on Facebook’s rules, whether to remove objectionable content from its site.
Spruce Point claims that TaskUs’s competitive position and the content moderation industry’s prospects generally have both slipped. There also are signs of alleged cash flow issues, Spruce Point Founder and CIO Ben Axler told The Post.
“We observe that TaskUs’ unbilled receivables to last 12 months revenues had been rising steadily for 18 months. This trend suggests that TaskUs may have been booking revenue ahead of receiving collections,” Axler says.
Accenture is the biggest player in the social networking monitoring space. TaskUs generates 28 percent of its business from the social-networking giant.
“There is a possibility Facebook moves more of this work in house and outsources it to fewer providers,” Axler added. “We find evidence of increasing financial strain in the [Facebook] relationship, and believe margins and cash flow are set to contract more than expected.”
Spruce Point Thursday morning released a slide presentation giving its short rationale. In response, a TaskUs spokesperson said the report was “designed for the sole purpose of negatively impacting TaskUs’ share price for Spruce Point’s own benefit.”
“We are reviewing the report and will take appropriate steps in response to the assertions,” the spokesperson added. “We remain confident in our strategy, our value proposition and our ability to create value for our clients, teammates and shareholders. We continue to see a strong growth trajectory and look forward to sharing information on our financial and operational performance during our fourth quarter earnings call.”
TaskUs shares on Wednesday closed at $35.59. On Thursday morning, the shares were recently off 11.7% at $31.44. The stock faces long-term downside risk to trading between $21 and $27 a share, Axler said.
When TaskUs went public in June, the company cited a September 2019 market report from the Everest Group which projected 40 to 50 percent industry growth to $5.8 billion in 2021. In May, however, Everest valued the content moderation market at between $4 billion and $5 billion and projected a lower 30 to 40 percent growth rate, according to data from TaskUs competitor Majorel Group.
Elsewhere, Spruce Point is raising alarm bells about the attrition rate for TaskUs employees, most of whom are in the Philippines. The fund also quotes an anonymous former TaskUs executive who claims there is wage inflation in the Philippines and that wages are going to rise for TaskUs by 10 to 20 percent.
Spruce Point on July 14 went public with a short thesis on oat-based drinks maker Oatly which, like TaskUs, has private-equity giant Blackstone Group as a major backer. Oatly shares sine have fallen to around $7 a share from $20 a share.
Blackstone since October 2019 took out $837 million from TaskUs through dividends and stock sales, Axler said, so it has already made a big return on its roughly $250 million fund investment. Perhaps, he said, Blackstone was focused on short-term profits rather than the long-term prospects.
Indeed, Axler said the fact Blackstone controls listed TaskUs is part of the reason he started researching the stock, and came to believe that both Oatly and TaskUs were exaggerating their growth claims.
Th”is is a blatant attempt to influence this company’s stock price for the sole benefit of a short seller,” Blackstone said in a statement. “TaskUs is a trusted partner to many high growth technology companies, which not only had a successful IPO but also significantly grew revenues and added thousands of jobs since Blackstone’s investment in 2018.”
Facebook didn’t immediately respond to a request for comment. .