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Why Aterian Stock Tanked 23.6% in November

By Brett Schafer – Dec 6, 2021 at 12:29PM

Key Points

  • Aterian is a consumer products roll-up that sells on e-commerce marketplaces.
  • The company is struggling to turn a profit and is running out of money.
  • The CEO has also been active on social media, making claims about investors who are shorting the stock.

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Another disappointing earnings result helped cap off a terrible year for the e-commerce company.

What happened

Shares of Aterian (ATER 2.56%) tanked 23.6% in November, according to data from S&P Global Market Intelligence. The consumer products roll-up reported another disappointing earnings result, and its founder and chief executive officer, Yaniv Sarig, continues to post strange messages on Twitter

So what

Aterian is a technology-focused consumer products company that buys brands that sell products on Amazon and other e-commerce marketplaces. For example, this year it bought Squatty Potty, a toilet-seat brand that has grown in popularity over the past few years. In Q3, Aterian's revenue grew 16% year over year to $68.1 million and claims it is profitable by posting positive adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization).

Shipping label getting put on a box.

Image source: Getty Images.

These numbers look good at first glance. However, since Aterian is constantly acquiring companies, basic revenue growth can mask any problems the business is having. Aterian's trailing-12-month revenue per share has gone down from around $11 a few quarters ago to $8 today, which is essentially the same level it was at two years ago.

Cash flow looks even worse, and the company may run into liquidity problems if it can't raise more money soon. Over the first nine months of this year, Aterian had negative-$40 million in operating cash flow and spent over $40 million on acquisitions. With less than $40 million on its balance sheet, Aterian is going to run out of money soon unless it turns around its cash flow or can raise more money through either a debt or equity offering. 

Now what

Aterian is a struggling business, and it's no surprise the stock is down more than 70% year to date. On top of this, Sarig has been posting claims about "naked shorting" against Aterian stock. Without getting into the details of naked shorting, CEOs who focus on stock price over running the business tend not to inspire confidence among long-term investors.

Even with the stock down so much this year, Aterian's business is struggling at the moment, and may be headed for bankruptcy if things don't turn around. Combined with a CEO who's focused on short-sellers, it's tough to argue that investors should buy Aterian stock at any price.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Brett Schafer has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Amazon and Twitter. The Motley Fool recommends Aterian, Inc. and recommends the following options: long January 2022 $1,920 calls on Amazon and short January 2022 $1,940 calls on Amazon. The Motley Fool has a disclosure policy.

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