XpresSpa (NASDAQ:XSPA) is proof that bullish conviction can overcome a lot of evidence to the contrary. XSPA stock is up nearly 45% in 2020. And that’s despite being down 60% from its peak in early June. This is despite the fact that the company reported revenue of just $143,000 which was down 98.9% on a year-over-year (YoY) basis. And the company’s net loss was 859% lower than the loss they reported in 2019.
XpresSpa has recently gotten into the business of Covid-19 testing. And while that sounds good on the surface, you don’t have to dig too far to come up with difficult questions.
In July, I wrote that XSPA was a better story than it was a stock. I believe one of the most compelling reasons is simple. The bullish case for XSPA stock depends on a single outcome. That is a world where the novel coronavirus simply exists without a vaccine or proven treatment.
And that’s an outcome that’s not rooted in reality and ultimately would be harmful to the company’s business.
XpresSpa Is Executing a Hard Pivot
A year ago, XpresSpa was in the business of indulging passengers. They offered massages and other spa services to passengers waiting for a flight.
Demand for those services evaporated when airline traffic cratered. And the company adeptly, although without any experience, pivoted to providing Covid-19 testing facilities. The idea was to test “airline employees, contractors and workers, concessionaires and their employees, TSA agents, and U.S. Customs and Border Protection agents.”
And the company is hiring the right people to make this happen. XpresSpa has announced it has a contract with the Port Authority of New York and New Jersey. But for the company to expand its business to other locations, it will need to convince more customers to use its service. And the question you might want to ask as an investor is why they should?
Luke Lango observed that Covid-19 tests run about $100. But I can personally attest that a family member took a test before necessary travel for the bargain price of free. Now to be fair, this wasn’t an instant response test, but it adds support to a point Larry Ramer made; free testing is available and accessible.
So I ask you again, why would an airline pay XpresSpa to have their employees tested when they can get tested for free?
The Race Is Ongoing
I recently wrote an article analyzing Sorrento Therapeutics (NASDAQ:SRNE). The company is attempting to get approval for a rapid response saliva test for Covid-19. If it succeeds (and that’s a big if), it would be another competitor for XpresSpa.
I am not in a position to doubt the efficacy of Sorrento’s test. The professionals who conduct the peer reviews will take care of that. But my overall argument against both SRNE stock and XSPA stock is the same. If our global goal is to develop a Covid-19 vaccine, then at some point the masks can come off and the need for testing will be greatly reduced before fading away completely.
So let’s look at two scenarios. First, let’s speculate that there will be one or more safe, effective Covid-19 vaccines. In all likelihood the vaccine will not be ready for mass distribution until mid to late 2021. But let’s say it goes into 2022.
That still leaves XpresSpa with a window of less than two years to make their revenue. However the company is having problems getting additional testing centers open. Furthermore they acknowledge that it can’t provide any assurance that it will be able to “expand its XpresCheck brand” on a particular timeline.
And then what? The company announced plans to test for additional communicable diseases. They are also exploring the possibility of administering flu shots and possibly even a Covid-19 vaccine.
But let’s look at the other outcome. If there is not vaccine, then it’s unlikely that airline travel will return to anything resembling normal. And that means that even if the company can get a scenario that benefits it the most, it’s hard to imagine the company generating the revenue it needs to be viable. Keep in mind, the company currently operates at just one airport.
Speculate on XSPA Stock At Your Own Risk
If you’re looking to speculate in XSPA stock as a short-term story stock, I can’t stop you. I think the odds of my beloved Cleveland Browns winning the Super Bowl are better than XSPA turning into a profitable business. However we each speculate in our own way.
You don’t have to dislike the company’s efforts to grasp a simple truth. XpresSpa could do everything right and its stock may still be worthless from a long-term perspective.
Chris Markoch is a freelance financial copywriter who has been covering the market for over five years. He has been writing for Investor Place since 2019. As of this writing, Chris Markoch did not hold a position in any of the aforementioned securities.