GSX Techedu is a “near-total fraud” and worthless, according to one investment firm.
Muddy Waters Research says at least 70 percent of the Beijing-based GSX’s users are bots and that the real number is likely 80 percent or more. The company doesn’t generate revenue without users and its expenses are greatly understated, the report found.
Shares of the $7.88 billion educational software provider fell sharply after Muddy Waters tweeted out its findings.
“We conclude that GSX is a massive loss-making business,” Muddy Waters said. “Regardless of how one cuts it though, GSX is an almost completely empty box,”
The company’s chairman, Larry Chen, pledged $318 million worth of shares, making the stock “even more dangerous for long holders,” according to the report, which looked at data from more than 200 paid K-12 classes and 54,065 users.
When reached by FOX Business, a spokesperson for GSX denied the claims.
Muddy Waters’ report came after Citron Research last month called GSX “the most blatant Chinese stock fraud since 2011.”
Citron said GSX was overstating revenue by up to 70 percent and that the company should “immediately halt trading and launch an internal investigation.”
GSX shares were up 62 percent this year through Friday, outperforming the S&P 500’s 11 percent decline.
Chinese companies listed in the U.S. aren’t required to abide by the same accounting standards as American firms. There were 156 Chinese companies listed on U.S. Exchanges worth $1.2 trillion as of Feb. 25, 2019, according to the U.S.-China Economic and Security Review Commission.
These companies have come under increased scrutiny in recent weeks as the Trump administration has begun looking into ways to punish China for its handling of COVID-19.
President Trump last week told FOX Business’ Maria Bartiromo that his administration is looking "very strongly” at requiring Chinese companies to follow U.S. accounting standards. However, he said that such companies would just look to London or Hong Kong if they weren’t allowed to list in the U.S.
The White House last week ordered the Federal Retirement Thrift Investment Board, a government retirement fund, to divest its holdings of $4 billion of equity stakes in Chinese companies.