Not that long ago, Ideanomics (NASDAQ:IDEX) wasn’t a real business. The massive rally in IDEX stock suggests investors now believe that it is.
To some extent, that’s true. Ideanomics has made a pair of acquisitions in recent months, both of which look at least intriguing. It’s taken stakes in several electric vehicle startups.
There is debate over the value of the MEG (Mobile Energy Global) division, particularly after a short-seller report last year, but MEG’s business has made at least some progress since being established last year.
That said, Ideanomoics’ dodgy past still should color the perception of the company’s future, and a market capitalization of $1.25 billion requires more than just improved revenue.
We’re a long way from even considering IDEX stock as a true play in either electric vehicles or ‘fintech’. To get to that point, Ideanomics has a number of questions to answer.
A Dodgy History
I’ve covered Ideanomics’ history in detail in the past, but it’s worth revisiting.
After a multi-year effort to develop streaming video in China failed, what was then called YOU On Demand pivoted.
The renamed Seven Stars Cloud Group started by trading crude oil and electronics. That was supposedly to generate data for its plans in artificial intelligence, even though it made no effort to “integrate blockchain- or AI-based logistics solutions.”
According to SEC filings, most of the oil was purchased from three suppliers with “significant influence” from a minority shareholder of Ideanomics.
That was far from the only related-party concern. Ideanomics/SSC made a number of acquisitions with companies affiliated with chairman Dr. Bruno Wu. One supposedly would allow SSC to create a “fund management platform.” A business called FinTalk cost $7 million in 2018 (mostly in stock), and was shut down the following year.
Wu had an interest in Grapevine, also acquired in 2018. That business supposedly was going to be sold last year, but the company then announced the launch of an e-commerce marketplace whose role in the broader strategy remains uncertain.
There was the claim in a filing and on a conference call in 2019 that the company owned Bitcoin (CCC:BTC-USD) and Ethereum (CCC:ETH-USD). That claim eventually changed to owning BTC and ETH denominated in an altcoin which proved worthless (while also accounting for most of the company’s revenue that year).
Simply put, Ideanomics acted like a dodgy penny stock. IDEX stock traded as such.
The EV Pivot
It doesn’t seem that way anymore. In part because of a roaring share price last year, Ideanomics was able to raise a significant amount of capital. It’s put a lot of that capital to work making acquisitions.
There’s Timios Holdings, a title and settlement provider acquired for roughly $45 million. Earlier this year, it picked up Wireless Advanced Vehicle Electrification, or WAVE, for $50 million in cash and stock.
Ideanomics has moved to acquire stakes in startups as well, including Italian electric motorcycle Energica, an EV design firm, a U.K.-based commodity trading platform, and electric tractor developer Solectrac. It has legacy ownership of Malaysia e-bike maker Treeletrik as well.
Broadly speaking, there’s a strategy here which combines fintech on one side with electric vehicles on the other. MEG sits in the middle, offering fleet financing for EVs in China. Ideanomics plans to expand that business to North America as well.
So there is a case for IDEX stock that admits that past transactions perhaps weren’t always in the best interest of shareholders, but emphasizes that it is all in the past. There’s an intriguing strategy underpinning the business — and thus potential upside for IDEX stock.
To be blunt, that’s not a case that I would make, even if some investors are. That dodgy history still matters. It’s largely the same management team running Ideanomics that was there when the company was trading crude oil and shutting down newly acquired businesses.
The Risks to IDEX Stock
More importantly, looking closer, there are continued questions. The legacy fintech businesses still have done nothing. Inteligenta still doesn’t appear to even have a website. Ideanomics spent months talking up its EV efforts in China, and last summer issued several press releases that touted orders.
Now, the company suddenly has decided to stop reporting monthly numbers. It claims the problem is that Ideanomics’ “revenue streams are already more diverse” than they were last year.
That’s an odd explanation for giving less information, and it follows Q4 delivery numbers that looked soft. Units did rise a little over 10% quarter-over-quarter. But in Q3, gross profit was less than $700,000.
The problem is that the acquisitions don’t support the current market cap. Ideanomics spent less than $150 million in total. The business is valued at well over $1 billion now.
It’s also strange that WAVE, for instance, sold for $50 million when Blink Charging (NASDAQ:BLNK) is worth $1.6 billion and ChargePoint (NYSE:CHPT) more than $7 billion. How bullish is WAVE management to sell at such a number?
However you slice, Ideanomics’ current valuation requires significant contributions from fintech and EVs. We’re not seeing those contributions yet. The guidance change hardly suggests strong orders in the first two months of 2021. Ideanomics’ history strongly suggests it would be trumpeting good news rather than burying it.
Admittedly, Ideanomics has made progress. Not long ago, a skeptic would say that, when it came to Ideanomics, there was nothing there. Now, there’s something there.
But until we understand precisely what that something is, and what it’s worth, IDEX stock should be avoided.
On the date of publication, Vince Martin did not have (either directly or indirectly) any positions in the securities mentioned in this article.