Last week, the share price of Amdocs Ltd. (Nasdaq: DOX) reached an all-time high. The peak did not last long: on Wednesday this week, the price plunged 11.2% on especially high volume, following a negative report from an outfit called Jehoshaphat Research that raised claims of inflated profit figures at Amdocs and described its stock as "uninvestable". Amdocs' market cap has fallen to $9.2 billion. The company, headed by Shuky Sheffer, provides systems and solutions to telecommunications companies.
For investors in Amdocs, this week's events were perhaps reminiscent of something similar that happened in early 2019, when Ben Axler of short-sell specialist Spruce Point Capital gave a "Strong Sell" recommendation for Amdocs, estimating that its share price would drop from its then level of $60 to $30-45.
Spruce Point Capital's recommendation depressed Amdocs' share price in the short term, and a year later the stock was indeed traded at around $45, a price to which it fell when the reverberations of the coronavirus pandemic hit the US stock market in general, but since then it has climbed back again, and, as mentioned, reached record levels last week.
Now, Jehoshaphat Research has released a negative recommendation that has sent Amdocs tumbling. It claims that Amdocs' profits were inflated by 40-50%, a claim based on comparison of the profitability of the company's subsidiaries with the consolidated profit of the parent company.
"How do you turn declining revenues into growing ones? Send them to Amdocs HQ in Israel", the report states. Its authors say they spoke to a former employee of Amdocs in the US who told them that he saw a substantial decline in revenue from major US customers (AT&T, T-Mobile, Sprint), of around 7% a year.
The report says that Amdocs managed partly to compensate for this through contract wins in other parts of the world, but projects in Europe and Latin America were 15-20% less profitable than projects in the US. The authors say they asked the former employee how Amdocs could present growth, and his reply astonished them.
"That’s the million-dollar question. In 2016 and beyond, I stopped being able to make sense of what Amdocs was reporting to Wall Street. I used to be able to see the relationship between our North America numbers and what Amdocs would report in North America, until 2016.From that point on until I left, the numbers just didn’t correspond to what we were sending to HQ. We would independently calculate our performance for the quarter and report it to Amdocs HQ in Israel, and it would not be good; it would be declining. But then later, when Amdocs would present its quarterly numbers to Wall Street, North America would be somehow growing. This surprised me every quarter."
The accusations are grave, and Amdocs forcefully rejects them. "The report contains inaccurate statements, groundless claims and speculation that were designed to drive the stock price downwards to serve the short seller’s interests to the detriment of Amdocs shareholders. We remain fully confident in our accounting and business practices. We caution shareholders from making investment decisions based on this report.
"Amdocs delivered record revenue of more than $4.2 billion for the full fiscal year 2020, with stable non-GAAP operating margins. Our financial outlook remains strong…We continue to communicate directly with our investors regarding the short seller’s report and we will provide more detailed information next week," Amdocs stated.
Sources close to the company raise further questions about the report. They say that extensive checks have found no investment house, company or other entity by the name of Jehoshaphat, and that the web domain Jehoshaphat was set up only a week ago. They also say that there are indications that the Twitter account just now opened is under restriction (perhaps suspect or counterfeit).
In its first fiscal quarter of 2021 (to December 31, 2020), Amdocs' reported revenue totaling $1.1 billion, $33 million more than in the previous quarter. Non-GAAP net profit for the quarter was $153 million, up 6% on the corresponding quarter of 2020.
"Globes" recently reported that Amdocs was in talks with the Israel Tax Authority on transferring all its intellectual property to Israel in exchange for tax benefits worth billions of shekels.
Published by Globes, Israel business news - en.globes.co.il - on April 1, 2021
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