Today, shares of Rockley Photonics (NYSE:RKLY) are down by 1% after Iceberg Research released a short report via a Twitter (NYSE:TWTR) thread. Following the report, shares of RKLY stock fell by as much as 10% before recovering higher.
Rockley operates as a photonics-based health-monitoring company that specializes in developing biosensors for smartwatches and other medical devices. Iceberg believes that the company has run into “technological roadblocks” and will soon face a “cash crunch and heavy dilution.”
So, with that in mind, let’s jump into the details of the short report. Here’s what investors should know.
Why Is RKLY Stock Down Today?
Iceberg starts off the short report by highlighting Rockley’s claim about its spectrography technology. The company says its tech has 1 million times higher resolution and is 1,000 times more accurate than current light emitting diode (LED) technology. Rockley also plans on commercializing its standalone biosensor solution this year. By 2023, it plans on integrating the biosensor into product lines like smartwatches as well.
However, in the report, Iceberg cites a Bloomberg article that states Apple (NASDAQ:AAPL) has delayed a blood pressure function in its own smartwatch until 2024. Bloomberg’s anonymous source explained that “accuracy has been a challenge during testing.” What’s more, Bloomberg’s Mark Gurman believes Apple is still “several years away from bringing major new health sensors to the Apple Watch.” These “new health sensors” include both glucose and blood sugar monitoring.
So, Iceberg’s conclusion? Despite Rockley’s resolution and accuracy claims, the research firm believes the company’s technology is the same tech currently failing Apple.
Iceberg Alleges Rockley’s Tech Is Failing Apple
Iceberg alleges that Apple has been trying to use Rockley’s technology for the new biosensors in its watches. To substantiate this claim, the short seller points to multiple articles and interviews showing the two companies have worked together since 2017. Iceberg also did not “find other spectroscopy companies in the health wearables space.”
If Rockley’s technology has been failing, then the forecast it presented to its special purpose acquisition company (SPAC) investors will fall far short of estimates. On top of that, its legacy communication business has already been damaged. The the U.S. Department of Commerce sanctioned its joint venture partner, Hengtong Optic-Electric. As a result, Rockley was forced to reduce its 2022 sales guidance by 75% to $20 million.
Iceberg also points out that Rockley management has said the company has a nine-month cash runway. Because of this, the company will inevitably be forced to raise cash before the end of the year.
All told, Iceberg believes that Rockley has oversold its tech to raise cash for its SPAC merger. In order to continue operating, the company must “turn to heavily-dilutive financing sources.” Diluting the company will in turn lower the price of RKLY stock.
On the date of publication, Eddie Pan did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.