Cupid: I was wrong - sell/go short

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This article on Cupid was emailed out to users of onefreesharetip.com about an hour ago since when shares in Cupid have fallen by 11p to 101p. I do not normally reprint onefreesharetip.com articles. If you want them sign up to the service and be ahead of the curve. But in response to a few requests I reprint this one. This is a one-off. If you want ideas ( short and long) from a panel of 20 odd share tipsters, bloggers and analysts REGISTER HERE

The article reads:

My colleague Adnan Siddique wrote the other day here that online dating agency Cupid (LSE: CUP) was a binary bet. It was either going to double or crater. I agreed with that analysis and like him thought it was right to buy. We would both now stick with the binary bet call but would both advise selling and – in fact – would open a short position. The current short is, BTW, not 27% but perhaps 6% of the issued share capital. I think that number will get much larger pretty soon. This is not a stock to hold. I got it wrong but having read some fresh material last night am making a 100% volte face on this. What you have lost on the bull track you should aim to recoup on the bear tack by going short.

The bull case for Cupid (me getting it wrong) is presented HERE

On the facts known at the time it was a fair assessment. But new matters (not available via RNS or the company) have come to my attention. And so I must apologise for a bad call.  Now here is the way to make your money back.

Why the change of call? Is it pique that Cupid is presenting information to funds via a presentation it will not let private investors or journalists see? No. But I think that it is odd. On reflection I conclude that Cupid does not want its presentation to be subject to wider scrutiny. Whatever its foxy PR bird Rebecca says, this seems odd. It is un-nerving.

But it is not that which makes me change my view with a 180 degree turnaround. It is that I now have grave concerns about the way Cupid operates from its Ukrainian operations which question whether its business model is in fact viable at all. An article has appeared behind a paywall on a regional paper Kyivpost.com which is devastating if it is true. I stress the word IF at this juncture. However Cupid needs to prover ASAP that the article is 100% untrue. It has had days to do this and has not done so, so far.

One of Kyivpost.com’s female reporters claims to have gone undercover to apply for a job as a “Motivation Manager.”  The reporter alleges (and claims to have contemporaneous notes backing this up) that she went undercover using a fictitious name and was invited by Elizaveta, one of the Cupid plc recruiters, for a job interview to Zaporizhya on Jan. 28. She claims that during the interview, it was explained that the job involved posing as a female user of the dating site and encouraging male users online to buy memberships. The article quotes the interviewer (Svitlana) as stating that “Of course we fool people, but it is only to show them that there are real people on the website, so that they would not be disappointed and eventually find somebody real.”  And went on to say that the employee is supposed to communicate with customers for three days, “keeping them interested and thus buying a monthly membership.” In this job interview Svitlana said that “motivation managers” work from home in three shifts – from 8 a.m. to 4 p.m. then 4 p.m. until midnight, then until 8 a.m. and that different people are responsible for different countries, like the U.S., Australia and they have to adjust to the time zone when customers are online and can chat.

A Motivation Manager (and Cupid does post job adverts with such a title) gets paid Hr 1,600 ($200) for the first trial month. After this it is about Hr 2,500 ($310).  The reporter claims that she was told that managers have to send “about 200” short messages to clients during the shift and that Cupid has technology helping MMs write that many messages.

Separately, a Kyiv Post journalist claims to have registered as a male from Ukraine at cupid.com, but received no emails. However, when registering from Belgium, using a local Internet protocol and posing as a Belgian male, the journalist claims that he immediately got three emails from two females nearby. Only the subject headings of their emails were available, all in English. To read the full message one must pay 4.47 euros ($5.83) for a three-day membership trial. The terms and conditions state that unless the member cancels membership during the trial period, the system automatically subscribes the person for the monthly membership of 27.99 euros.

Cupid is fully aware of this article. It now has two choices.

 

  1. Issue an RNS announcing that this is all untrue and that the Kyiv Post has made it all up and that it is suing for libel etc. I should say that the journalists responsible have been contacted by someone I know and stand by every word, say they have full contemporaneous notes and insist that they will go to court to defend the piece.
  2. Admit that the story is true.
  3. Say nothing is not an option in that folks will take that as being the same as option 2.

If this story is true then Cupid is generating revenues on the basis of a false sales pitch. I suspect that what is alleged is legal but is it sustainable? It may be but I suspect that it is not. Unless Cupid can demonstrate that it is not winning business in the way that it is alleged, its websites will surely suffer reputational Armageddon and the business is thus worthless. I find it unlikely that it would engage in such practice without top level sanction. This will get messy in a regulatory sense if the allegations are proven.

I say IF. Cupid needs to come out today and deny the story categorically if it is to avoid its shares continuing to fall. Adverts for “Motivation managers” do exist and for me to feel comfortable with this stock I think I need to know how many of the company’s 500 employees in the Ukraine are employed in this capacity and Cupid needs to explain very clearly indeed what their job involves in a direct RNS statement to ALL investors.

If Cupid declines to do this investors will think the worse and the share price and business will get flamed.

This is not a question about who you believe in: the Ukrainian journalists or a City broking/PR/IR machine? As someone who plans to have his funeral at St Brides and not at whichever church sees PR/broking folks buried before they head off to hell, I know who I rather want to believe but that is not the issue as far as the share price and long term viability of the business is concerned.  The issue is how Cupid reacts.

Unless this story is nailed fast by Cupid as 100% untrue the shares will slide and slide and in the wider world of the internet folks simply will not use its services. So if Cupid is unable to show beyond all doubt that it is untrue the shares will crater.

But Cupid has surely known about this article for a while yet has done nothing about it. In the absence of a 100% formal rebuttal from Cupid I would be closing my long and opening a short at 112p.

The ball is in Cupid’s court.

Tom Winnifrith writes for 10 US and UK websites and you can follow him on twitter @tomWinnifrith

Tom is one of 25 speakers at the UK’s top investor show, UK Investor which takes place on April 13th in London. For more details on that day and on the speakers and companies attending go to www.UKInvestorshow.com

I will not make a habit of reprinting material that is sent out to users of onefreesharetip.com – this is a one off. Those who signed up to this service read this piece when the shares were 112p. They are now ( an hour later) 101p – if you want to be ahead of the curve sign up HERE

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