Let's Gowex Ends Up Going South...

This is a nice story to kick off the weekend, one that is totally up my alley. Although this blog is very recent, people that know me since a bit longer than a week, also know that I really hate modern investors that buy on hype and totally forego any sort of financial investigation. The GoPro post from the other day was along those lines, and today’s story is even more so.

This is the story of Let’s Gowex, a Spanish WiFi provider that has been making some headlines in the last few days, and not for the right reasons. In recent years, this company has been lauded several times for its significant growth and innovation. As recently as May this year the founder and CEO Jenaro Garcia won the top prize from Spain’s marketing association, and Garcia was referred to as “a magician who converted WiFi into water.” (I am not really sure what that is supposed to mean) In a nutshell, Gowex is a company providing free WiFi, having it instead financed by advertisement. It has been doing a number of implementations in Spain as well as elsewhere in Europe and also the US. Financial records have seemed very promising, and the stock price shot up as of September last year from EUR 5.38 peaking at EUR 27 in late March this year. That is a 400% increase over 6 months, and the type of absurd price increase that gets people to lose all sense of reality. It must be brilliant if the price goes up like that, no?

In late June this year, Jerano Garcia stated that Gowex was expanding fast and would soon provide WiFi to 20% of the world’s population. Indeed something that would warrant even a considerably higher stock market value, but also something so obviously impossible.

Luckily there are some people out there that do not believe everything they see or read, and short seller Gotham City Research decided to investigate the company in some detail. This was certainly not the first of Gotham’s victims as they have already covered a number of other dubious companies, and this time their report has had a significant effect. On July 1^st they published their report stating that their target stock price was EUR 0.00, and backed this up by disclosing a vast number of irregularities and plain lies in Gowex’s financial figures and claims from their CEO. Basically the revenue of Gowex had been overstated 10 fold.

After the report was published, Jenaro Garcia initially went on the offensive claiming that Gotham’s report was false, and was threatening going to court. The following day he admitted that the report was all true, and the stock subsequently dropped to the floor. It may be that the company actually survives in the end, but for now it has filed for bankruptcy protection. However a lot of greedy investors will have lost huge amounts for following the crowd instead of actually doing some investigative work on their own.

I gather that there are a lot of shadows around Gotham City Research, but I for one will certainly be keeping a look at their reports in the future. If for nothing else then at least to inspire a few more blog posts.