Shares of MicroVision (MVIS) are under pressure on Tuesday after Wolfpack Research announced it is short the stock, saying it sees "near-term downside of at least 90% as insolvency looms and investors wait on a deal that isn't coming." The short seller added that it believes buyout rumors "have absolutely no basis in reality."

'REALITY CHECK': Wolfpack Research said via Twitter that it its short MicroVision as it believes "the buyout rumors that have fueled its 1,000% run over the last 3 months have absolutely no basis in reality. We see near-term downside of at least 90% as insolvency looms and investors wait on a deal that isn't coming." The short seller also pointed out that, "On 4/6/20, $MVIS published a PR announcing it had retained Craig-Hallum as a financial advisor as it explores strategic alternatives 'including a potential sale or merger of the company' to avoid bankruptcy. 3/ Ironically, $MVIS's stock pump likely ruined any chance it had at making a deal. While a buyout may have been possible in March at its enterprise value of $22M (2.6x TTM sales), a deal anywhere near its current $386M EV (45x TTM sales) is entirely unrealistic."

"We have seen $MVIS bulls on Twitter dreaming of a $1 billion buyout 'coming soon.' We feel obligated to deliver a reality check before more retail investors are sucked into this ridiculous story. $1B implies an EV/Sales multiple of 118x for this nearly insolvent company. 5/ We see no reason for anyone to buy $MVIS at any price. Most or all of its 2020 revenue will be from a 2017 deal, which the customer prepaid $10M for future purchases. $9.3M of this deferred revenue was remaining as of 1Q20, meaning this will be exclusively non-cash revenue," Wolfpack said via Twitter. Moreover, the short seller argued that he doesn’t believe MicroVision "can remain solvent through the end of this year. After a PPP loan and $6.2 million in dilutive equity raises between 3/31 and 5/6, $MVIS had only $10M of cash left in May. It burned -$5.5M of [free cash flow] in 1Q20 while laying off 60% of its employees."

Back in April, MicroVision announced it had retained investment banking firm Craig-Hallum Capital Group to serve as its financial advisor as it explores various licensing and other strategic alternatives, including a potential sale or merger of the company.

MICROSOFT SPECULATION: Commenting on MicroVision's "significant" share appreciation at the time of his research note on May 6, Craig-Hallum analyst Mike Malouf argued that the primary drivers of the dramatic increase were speculation that the company's technology was in Microsoft's (MSFT) Hololens 2 and that Microsoft would be interested in buying MicroVision. The analyst felt that this speculation was significantly overblown in the stock price, as the assumption of MicroVision technology in the Hololens 2 was nothing new, and the sale of IP to Microsoft removed most of the buyout incentive.

Malouf saw, however, one positive, namely that with the significantly high volume at the time, the company had maximized their ATM for about $200,000-$300,000 per day, which, combined with their PPP loan, should allow the company to operate through the end of summer.

PRICE ACTION: In afternoon trading, shares of MicroVision have dropped 23c, or 9%, to $2.16.