Shares of Facedrive (TSXV:FD) have crashed by more than 80% since the start of 2021. After hitting a high of $60 earlier this year, the stock is now trading around just $2. Hype has driven Facedrive to obscene valuations in the past, with investors sometimes paying more than +1,000 times revenue for the business. That’s an incredibly high price tag by any standard. Today, it’s still at a multiple of around 28, which is by no means cheap.
But the problem with Facedrive goes deeper than just its valuation. The business isn’t anywhere near profitable; when it reported its quarterly earnings for the period ending June 30, its net loss of $7.6 million was deeper than its $6.7 million loss from a year ago. Although the company’s top line has surged from less than $100k to just under $5.8 million during that time, it remains a risky buy. Facedrive’s cost of revenue totaled $5.3 million last quarter and accounted for more than 92% of its revenue. With such low margins, it’s hard for a lean business to turn a profit. And Facedrive is far from lean – its total operating expenses were around $14 million for the period, more than double its revenue.
And the business is still undergoing changes. What started out at just ride sharing expanded into food delivery, and today, Facedrive is also is involved in rapid testing for COVID-19. Its business is broad and that can make it difficult to manage and keep costs down.
With some poor results and a complex business model, this is a stock that can still fall much lower. Investors should be cautious with Facedrive as there’s no guarantee it has hit bottom yet.