Ideanomics (NASDAQ:IDEX) stock represents a company trying to catch onto the leading edge of market trends. In order to do so the company has divided its operations into two divisions. One that acts as an intermediary in EV sales, financing, and charging solutions. The other division focuses on real estate, a small cap trading platform, and financial regulatory analytics.
The company calls these the Mobile Energy Global and Ideanomics Capital. This company is fledging and it’s a penny stock, but it also does have some positive results in its favor. In a few words, it’s intriguing.
The company’s business model of providing EV fleet discounts along with financing and charging seems like a growth area. The other division of the business seeks to serve the fintech industry, but a lot of what is posted on the website feels unsubstantiated.
Acquiring Size
The company has been increasing its footprint since October when it invested in Solectrac acquiring a 15% stake in the e-Tractor manufacturer(1). It then increased its stake in Solectrac a month later.
Between those two deals Ideanomics purchased Timios Holdings in an all-cash deal. Apparently the company also seeks to disrupt the mortgage and title industry in addition to EV financing, e-Tractors and a multitude of other aspirations.
It leads me to my overall impression of this company as I research it: it’s disjointed and difficult to decipher. Perhaps I just don’t understand how this all fits together, but it is simply hard to see what this company is trying to achieve. It feels like this company is throwing everything at the wall to see what sticks.
It has acquired some interesting assets undeniably, but all of these disparate businesses need to be operated, and efficiency is a real limiting factor.
But Lopsided
Remember this company comprises 2 business divisions: one focused on EVs, and one focused on real estate and fintech. In reality it seems that only the EV portion of the business is productive. The Mobile Energy Global division accounted for $10.1 million of the $10.6 million of revenues in Q3.
Almost all of the revenue was derived by acting as principal and agent in the sale of vehicles. This looks like the direction that the company will pursue unless it can find ways to make its other businesses viable.
And based on Q3 results, Mobile Energy Global accounts for 20 times more revenue than Ideanomics Capital.
Operations Suffer
Ideanomics is increasing its business across many differentiated assets and in doing so it has increased its revenues. But in the process it seriously eroded its profits.
Through the first 9 months of 2019 Ideanomics generated $43.286 million in profits. It generated $1.014 million through the same period in 2020.
Clearly the company prioritized third-party revenue as it pivoted away from a reliance on related-party revenues during that period. Ideanomics may end up being right, and there truly could be a massive opportunity in acting as a financing intermediary for EVs in China. But it’s hard to justify a decrease in profitability that large and claim to be going in the right direction as a business.
There’s a massive market and there must be a way to find profitability in that business. But if that’s what Ideanomics is trying to do, why is it buying Timios and focusing on that entire business division as well? It seems that the intermediary business is just what stuck when the company threw everything at the wall. But that is where the company is making money and nowhere else. My question is why not simply go hard at that rather than acquiring other, seemingly disparate businesses?
Takeaway
Ideanomics is an interesting company which has by no means been counted out. But I wouldn’t invest now. If the company can show that it can establish itself as a strong intermediary in financing EVs, then it becomes a possible buy. For now though, it’s just a muddled business that may or may not have struck gold.
On the date of publication, Alex Sirois did not have (either directly or indirectly) any positions in the securities mentioned in this article.
