Kerrisdale Capital's short report criticizes Lumen's recent stock surge, claiming it is driven by "buzzy headlines" and "misplaced retail investor enthusiasm."
The firm argues that the company's fundamentals remain weak despite the hype.
Lumen's recent announcement of a $5 billion deal in Private Connectivity Fabric is described as a "desperate bid to raise cash amid deteriorating revenues and growing liquidity concerns."
According to Kerrisdale, "net only ~$800m from these deals in the next few years" and provide a "meager" $21 million annually in recurring profit for operations and maintenance.
The Kerrisdale short report claims that Lumen's efforts to pivot towards AI and modern cloud-based services are insufficient to address its core issues.
The short-seller adds that Lumen's core business segment revenue plummeted by 8.6% in the second quarter, marking the worst decline in the company's history.
Moreover, they add that business segment products, which Lumen targeted for growth, actually fell by 1.1% in the same period.
Kerrisdale argues that Lumen's software remains uncompetitive compared to leading tech rivals and that its strategy to transition from legacy products to newer cloud services is flawed.