It appears that Kodak is attempting to make a comeback with two new business ventures. Kodak KashMiner and KODAKOne is their version of the flourishing crytocurrency. The news led to a significant increase in stock prices for the once faltering photo business.
Kodak has joined forces with WENN Digital, together they hope to create a new brand that will put the company back on the market. KODAKOne are planning on providing visual artists with a platform that will protect them against copyright infringement. They will approach the perpetrators and demand compensation for reproducing or using pictures without the consent of the owner. Payment will be made in the form of their own version of cryptocurrency called KODAKCoin.
As part of its debut of KODAKOne, Kodak will launch an initial coin offering (ICO) to qualified investors. Originally scheduled for January 31, 2018, the ICO has been delayed while the firm wades through the qualification process to ensure investors meet applicable jurisdiction criteria. The accredited investor photographer must make over $200k per year or have a net worth of over $1 million to participate in the ICO.
Interestingly, AppCoin, the public relations firm hired by WENN Digital to promote KODAKOne, has two executives and zero employees. AppCoin directly owns 7.5% of common stock of WENN Digital and another 12.5% is held by entities owned by AppCoin’s chairman. AppCoin will, at the completion of the ICO, own a full 20% of the aggregate number of KODAKCoins raised in the offering. For a company hired for consulting and promotion, it has a large vested interest in Kodak’s product.
Kodak KashMiner is a bitcoin mining machine that investors will rent for $3400 for a 24 month period. Included in the fee is United States customs duties and clearance, export customer clearance and air freight export licence. During those two years, half of all profits generated from mining will go to a company called Spotlite who havelicenced the Kodak brand name. Spotlite pays the operating fees for the machine. The program believes that if bitcoin remains at $14,000 it will make a yearly profit of $9,125, which is a 134% return on their investment. However, despite their optimism, critics are not in the slightest bit impressed.
Kodak Hits a Roadblock – Sahm Adrangi!
Kerrisdale Capital’s Sahm Adrangi was quick to throw cold water on the Kodak fire. In a twenty two page report, Adrangi shines a spotlight on some of the major holes in their new business venture. He states that Kodak are simply trying to capitalize on the success of crytocurrency, and according to experts consulted about the undertaking, their idea is not viable.
CNBC didn’t waste any time in getting their hands on the report. A business idea is not the only thing KODAKOne and WENN Digital have in common. Both companies appear to have got their hands dirty with illegitimate financial dealings. Kodak’s latest discrepancy could lead to an SEC investigation. Photographic evidence reveals a derelict building as the Wenn Digital office. The future isn’t looking very bright for either company, and plans to resurrect Kodak look set to end in disaster.
Kodak seems to have formed a habit of making bad business deals. Kodak KashMiner, the licensing deal made with Spotlight has gained attention for all the wrong reasons. Critics have labeled their mining rig product as unoriginal and their fast earning promotions as suspicious. They have a terrible reputation for unscrupulous activity, and it looks like KashMiner is doomed to failure before they have even started.
Kodak’s Cryptocurrency Fanfare vs. Underlying Fundamentals
Kodak famously missed the digital revolution. Despite inventing the digital camera, it focused its attention on film chemical processing and paper long after the market had moved on to newer, better technologies. The company went from the dominant player in the photography market to a year-long slide into irrelevance that resulted in bankruptcy in 2012. Since that bankruptcy, it has continued to struggle. Market watchers are wondering if their bid to enter the buzzy, hip cryptocurrency arena might be a flawed decision meant to rescue to ailing company.
Adrangi’s review of the fundamentals points to deeply problematic issues that will continue to plague Kodak, regardless of its cryptocurrency gambit. A significant drop in operating segments for 3Q17 in the company’s business growth lines meant to offset legacy revenue losses does not bode well.
While the company’s PROSPER commercial press platform experienced strong 40% year-over-year growth in 3Q16, sales dropped to just 9% growth in 3Q17, essentially indicating revenue growth is flat lining already. Meanwhile, EBITDA has fallen 32%, and the company has had to restate governance guidelines down for three consecutive quarters. EBITDA has been a chronic problem for Kodak since its bankruptcy, hovering around 87% below projections from the 2012 filing.
Kodak management blames a slowdown in the commercial printing market, with no evidence to back it up. Indeed, competitors RR Donnelley and Quad Graphics have experienced no such turmoil in the market and have not had to restate any governance guidelines as a result. The blame, more likely, is Kodak’s weak competitive position.
Following Kodak’s 3Q17 results, an S&P report downgraded its rating to CCC+/Outlook negative. In Adrangi’s view, the change is a strong indication that the company has little value and the equity is virtually worthless. Even with an assumed healthy valuation for the cryptocurrency venture, according to Adrangi, the basic fundamentals of the struggling company do not change.
What is striking in Kerrisdale’s conclusion is that the cryptocurrency direction does nothing to change these fundamental issues. The plot thickens with the CEO of Eastman Kodak Jeff Clark appearing to side with critics in a comment made during CES 2018. He doesn’t quite seem to understand how stocks in the company have almost doubled in such a short space of time.
Adrangi has predicted a bleak future for Kodak; he concludes that this series of bad business decisions will most certainly lead to the total collapse of the company.