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Shares of Support.com (NASDAQ: SPRT) have risen over 1,650% in 2021 and are up by a stellar 48% in early market trading on Aug. 30. In the last five trading sessions, SPRT stock has returned 250% to shareholders. So, what’s driving the frenzy in this tech stock?
It seems that retail traders on Reddit have targeted Support.com and initiated a short squeeze as the stock had a short interest ratio of around 25% at the start of August.
According to Vanda Research, Support.com was one of the most highly shorted stocks that have seen a retail buying frenzy in the last month. Data from S3 Partners shows us that the short-interest ratio grew to 60%. Ihor Dusaniwsky of S3 Partners explains, “Shares shorted were climbing earlier in the month, but we have seen short covering recently as the shorts are in the middle of a big squeeze. Short-sellers of Support.com are estimated to have lost $95 million in 2021 and this figure would have risen today given the stock’s stellar rise.
Support.com provides customer and technical support solutions to enterprises. It offers a cloud-based technology platform to clients part of the media and communication, healthcare, retail, and technology verticals with omnichannel programs including voice, and chat.
Support.com is now eyeing the highly disruptive cryptocurrency segment and announced a merger with crypto mining company Greenidge Generation recently. So, it's quite possible that the uptick in the prices of digital assets like Bitcoin and Ethereum would have driven SPRT stock higher in 2021. Greenidge Generation is a vertically integrated power-generation company as well and it disclosed plans to build a carbon-neutral mining operation in South Carolina.
We can see that Support.com is one of the many stocks popular on Reddit where retail investors have made money hand over fist by initiating several short squeezes in 2021. But, let’s see if SPRT stock is a solid long-term bet for investors.
SQRT stock grappling with falling revenue
Support.com reported sales of $60 million in 2017 and $69.54 million in 2018. However, its revenue fell to $63.3 million in 2019 and $43.86 million last year. It also meant that the company’s operating income fell from $2.95 million in 2019 to just $52,000 in 2020.
In the second quarter of 2021, total SQRT sales stood at $8.5 million which was 23% lower compared to the year-ago sales of $11 million. In the first quarter, its sales stood at $9.6 million. Support.com recorded a net loss of $0.8 million or $0.03 per share in Q2 of 2021 compared to a net income of $0.6 million or $0.03 per share in the prior year period. It also reported a loss of $2 million or $0.10 per share in Q1 of 2021.
In Q2, Support.com reported a gross profit of $3 million in Q2 compared to $3.9 million in the prior-year period and $3.5 million in Q1 of 2021. Its gross margin of 35% was similar to Q2 of 2020 and lower than its margin of 37% in the first quarter of 2021.
Its operating expenses also soared to $3.9 million in Q2, up from $3.4 million in the last year which included merger expenses of $0.7 million.
Support.com ended the June quarter with a cash balance of $38.5 million, up from $29.7 million in Q2 of 2020.
Valuation and more
Support.com is valued at a market cap of $925 million which suggests its trading at a trailing price to sales multiple of 21.5x that is extremely steep given it’s a company grappling with falling sales and negative profit margins.
SQRT stock is a high-risk bet for the fundamental investor and should be avoided as it's expected to remain volatile until normalcy resumes.
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