The research group Prescience Point recently released a report which states that InnerWorkings, Inc. (NASDAQ:INWK) is a “Strong Sell.” In the report, Prescience Point posted a price for InnerWorkings, Inc. (NASDAQ:INWK) of $5.00, which is about 50% lower than the current trading price.
Below you can find the executive summary of the report:
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“We believe shares of InnerWorkings, Inc. (Nasdaq: INWK or “IW”) are grossly overvalued and poised to collapse by as much as 55%. We believe the company is unveiling its revenues in violation of GAAP principles by misapplying gross revenue accounting, placing it in violation of its credit agreement. The SEC has inquired about IW’s gross revenue treatment, and we believe management’s response was incomplete and/or misleading. We note that Groupon (Nasdaq: GRPN) – which has many connections with IW, including a common cofounder, former board members, and the same auditor in Ernst & Young, Chicago – violated GAAP principles in the same way and was forced to restate its revenues. Similarly, we believe InnerWorkings, Inc. (NASDAQ:INWK) will be forced to restate its historical financial results.
Furthermore, IW shares many of the same bad qualities we profiled in our previous reports on The Acive Network (Nasdaq: ACTV or “Acive”) and Boulder Brands (Nasdaq: BDBD or “Boulder”). Similar to Acive, we note IW was also formed through dozens of questionable acquisitions – but IW structures them with opaque contingent payment terms that artificially boost EBITDA and EPS, even when its deals fail! To be clear, we believe InnerWorkings, Inc. (NASDAQ:INWK) has been able to inflate its EBITDA and EPS by converting acquisition earn‐out payables to earnings.
Similar to Boulder, where we spotted prior failures of management and trouble at the Board level with numerous departures, we note that IW had 4 out of its 7 board members either resign or decide not to run for reelection in 2012. Follow the $$: IW’s gross margins and free cash flow have been declining for several years, and its CEO began selling stock just weeks after announcing an expanded relationship with its biggest customer! We believe IW’s financial statements fail to reflect its true financial condition, that management is misrepresenting IW’s growth prospects, and that IW’s stock has an intrinsic value today of $5.00/share.”
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InnerWorkings, Inc. (NASDAQ:INWK) is engaged in providing print management and promotional solutions to clients from a wide range of industries, and the hedge fund industry’s interest in the company can be seen here.