Lumen Technologies (LUMN) Stock Decline

Lumen Technologies (LUMN) stock fell more than 10% on Tuesday after Kerrisdale Capital announced it is short on the company, expressing deep concerns about its financial stability and growth prospects.

Lumen has recently experienced a 400% increase in its shares but is now facing renewed scrutiny as it tries to leverage artificial intelligence to revive a business burdened with significant debt and declining revenue.

Kerrisdale Capital’s short report criticizes Lumen’s stock surge as being fueled by “buzzy headlines” and “misplaced retail investor enthusiasm.”

The firm highlights that despite the excitement, Lumen’s fundamentals remain weak. Their announcement of a $5 billion deal in Private Connectivity Fabric is characterized as a “desperate bid to raise cash amid deteriorating revenues and growing liquidity concerns.” According to Kerrisdale, Lumen will “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.

Furthermore, the short report states that Lumen’s efforts to pivot towards AI and modern cloud-based services are inadequate to tackle its core issues. The firm notes that Lumen’s core business segment revenue dropped by 8.6% in the second quarter, the worst decline recorded in the company’s history. Additional analysis indicates that the business segment products, targeted for growth, fell by 1.1% during the same period.

Kerrisdale argues that Lumen’s software is uncompetitive compared to leading tech rivals, asserting that Lumen’s strategy of migrating from legacy products to newer cloud services is fundamentally flawed. “AI is an exciting technology, and there are many compelling ways to invest in this powerful theme. A rapidly shrinking wireline telecom with inferior software and a history of underdelivering on growth is not one of them,” states Kerrisdale.

The firm warns that the current AI hype will eventually expose Lumen’s “dismal legacy telecom reality”, potentially pushing its share price back down.