TaskUs, Inc. (NASDAQ: TASK) plummets by 15% after Spruce Point Capital issues a detailed report outlining why it believes TaskUs’ shares face a long-term downside risk of between 24% to 50% or $17.80 per share to $$26.70 per share.
Founded by Jaspar Weir and Bryce Maddock in 2008, TaskUS is a business process outsourcing corporation based in Texas that concentrates on high-yield digital tech companies. Blackstone invested roughly $250 million into the company to help boost growth. This investment pushed TaskUs’ value to over $500 million.
Cash flow issues
The biography of the company’s CFO didn’t highlight that he was once Sify Technologies’ accountant, a corporation controlled and founded by Ramalinga Raju of Satyam Computer Service. Mr. Raju was convicted for orchestrating the financial fraud case in Satyam Computer Service.
Spruce found that TaskUs had unbilled receivables of revenues lasting a year which had been on a steady rise for the past eighteen months. This suggested the company might have been receiving collections after it had already booked revenue.
Increased margin pressure from Facebook
Facebook is TaskUs’ largest customer and accounts for around 28% of its revenue. The company provides Facebook with content security services, which involves monitoring and moderating controversial content.
Spruce found evidence that there was a 22% decrease in revenue per worker in this space over the last three financial quarters. When TaskUs was questioned by the Securities and Exchange Commission about disclosing its client’s agreements, it fought back, claiming it didn’t substantially depend on Facebook and other client contracts have similar terms.
The report claimed that TaskUs and Facebook had executed a fixed-price agreement, meaning TaskUs was most likely absorbing additional costs to ensure its best client stayed happy.
Understated recruitment and attrition costs
TaskUs credits its company culture for keeping it competitively strong, which eventually results in lower recruitment and attrition costs. The claims that annualized employee attrition rates for those who’ve been working for over 180 days came to around 14.9% and 32% in 2020 and 2019 respectively.
But, according to an interview with one of the company’s former executives, Spruce Capital found that most of the turnover happens in the initial 90 days. This questions why the company highlights the relevancy of the 180 days.
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