CNBC published an article on 2/7/2018 outlining that Kerrisdale Capital and its Chief Investor Officer Sahm Adrangi have issued a negative report on the Eastman Kodak Company. In the report, subtitled “Gone in a Flash”, Kerrisdale Capital addresses Kodak’s push to use blockchain and cryptocurrencies. “It’s a PR stunt – a distraction that will pass when the company reports
earnings and reminds investors of its distressed financial position,” reads the report. Kodak, primarily known as a commercial printing and imaging company, recently announced a partnership that enables them to forge ahead with image licensing through blockchain. With this, they gained a 187% stock rise.
Kerrisdale Capital is sceptical of the viability of the idea, stating that “Cryptographically hashing an image into a blockchain doesn’t prove the provenance of intellectual property, a blockchain does not reduce the resources necessary for copyright enforcement, no photographer would rather be paid in KODAKCoins over real money, etc.”
Further, they noted that Kodak is not in a position for strong recovery in the event that this blockchain venture does not work.
The Kerrisdale Capital report includes the following: “Kodak doesn’t have the luxury of hoping startup blockchain projects succeed – it’s staring at the possibility of default and a debt restructuring in the next 12-18 months.”
In addition to Kerrisdale and Sahm Adrangi deeming that Kodak is likely hoping onto the cryptocurrency and blockchain hype, they also bring up some suspicious financial activities on part of the Kodak board members. According to the report, “On January 8, 2018, exactly one day before Kodak announced its ‘Major Blockchain Initiative and Cryptocurrency,’ five board members awarded themselves 370,974 restricted stock units.” This action could potentially prompt an SEC investigation, and serve as material risk for this. Kerrisdale Capital reached out to a former SEC Enforcement Division lawyer, who says ““If I was thinking about buying the company’s stock, I would be worried about an SEC investigation lowering its value, I think it’s a legitimate concern for the company or for anyone that is considering being an investor of the company.”
The Kerrisdale Capital report addresses two of the primary mediums in which Kodak is becoming involved with blockchain and cryptocurrency.
Namely, KODAKCoins and KashMiner. The report determines through news reports that “as recently as 6 days prior to announcing its partnership with Kodak, Ryde/WENN Digital was trying to launch Ryde Coin.” KODAKone’s model appears very similar to that of Ryde Coin. The takeaway of Ryde Coin is that it would provide free image auditing and help to retrieve compensation upon location of copyright infringement. The selling point is that the service would cost less than settling in court. Karrisdale’s concluding statement on the topic is simple, “When Ryde Coin got no traction, WENN turned to Kodak.” As for KashMiner, Kerrisdale Capital and Sahm Adrangi recognize it as a scam and label the product with “deceptive marketing.” CNBC recaps that “Kerrisdale believes the announcements are a hollow attempt to chase the ICO craze that do nothing to offset Kodak’s poor fundamentals and unsustainable capital structure.”