White Diamond Research has published a short report on Direct Digital Holdings, alleging that the U.S. advertising platform has used its accounts receivable insurance to hide its true uncollectible accounts receivable.
In a December 11 report, White Diamond argued “no other public company we’ve seen in the digital advertising industry has this type of insurance” which it said puts the quality of the company’s revenue into question.
White Diamond also questioned Direct Digital’s $500,000 acquisition of Colossus and Huddled Masses in 2018 due to the former’s 5x revenue growth to $60 million in 2022.
Citing a reported $5.5 million in cash, accounts payable that almost doubled quarter over quarter to $45 million and a sizeable debt of $24 million with a 15% interest rate, the short seller argued that the company is “practically broke.”
“[Direct Digital] doesn’t mention any patents and reports zero R&D expense for its technology,” White Diamond said. “This suggests that its tech isn’t proprietary and isn’t improving to keep up with the strong competition in the space.”
After Direct Digital’s stock soared more than 400% to a peak of $13.41 following the release of its third-quarter 2023 earnings, the short seller is forecasting that it will “immediately start retracing back down and return to $2.50 per share.”
Direct Digital Holdings’ stock was trading at $11.69 at 11:21 a.m. on Monday, down 5%.