- Blue Prism’s shares have been falling since Shadowfall published its note
- The short seller has pointed to the same problems as the Investors Chronicle in our recent sell recommendation
Short seller Shadowfall has raised the same concerns previously expressed by the Investors Chronicle, regarding Blue Prism (PRSM). The robotics processing company has hit 13-bagger status since its initial public offering in 2016, as investors clamoured to a buy into what promised to be a phenomenal growth story – businesses which employ robots to complete back office tasks in double-quick time certainly sound like giants of the future.
But ‘robotics’ is a flattering word for a company which does little more than sell advanced accounting and filing software. Having spent an average of just 6.9 per cent of its annual sales on research and development in the last two years, it’s hardly surprising that the company is struggling to stand out in a highly competitive market. Blue Prism did finally start capitalising some R&D costs last year (it is somewhat concerning that before 2019, management didn’t think its product investment would contribute to the long term value of the business), but at £4.6m, this was still dwarfed by the £23.6m of capitalised commission paid on sales.
Poorly deployed investment looks like it's starting to bite. Shadowfall’s note highlights that Blue Prism won just 490 new customers in its 2020 financial year, compared to 685 net new customers in the previous year. “Blue Prism’s rate of customer wins has fallen for the third consecutive half year.” And those customers are bringing in less and less revenue year on year. “Upsells as a percentage of opening customers look to us to have declined from 67 per cent in the second half of 2017 to what we calculate to be 17 per cent in the second half of 2020,” according to Shadowfall’s research.
Admittedly the short seller has form for unsuccessful calls - shares in Boohoo and Future continued to climb in the weeks after short reports by Shadowfall. But it is not alone in building a short position in Blue Prism. Short interest in the shares has shot up from 1 per cent at the end of 2019 to 4.5 per cent at the last count.
With the highly paid team of sales staff failing to deliver as much revenue as it used to and deep-pocketed competition continuing to rise, we agree that the outlook for Blue Prism is very murky. Sell