Monday, August 10, 2020

Kodak - Just A Pump 'N Dump Scheme?

When someone can't tell you what their business model is in ten words or less, watch out.

In the last few months, I have received a number of emails from readers asking me about Kodak stock. This tells me that somewhere on the internet, someone is hyping Kodak stock as some sort of get rich quick scheme.

I was born in Rochester New York, the hometown of Kodak. My Dad was an executive at a company called ITEK, which some wags said stood for "I Took Eastman Kodak" because of some disputes over intellectual property.  I think they made high speed cameras for U2 spyplanes or spy satellites or something along those lines.

Back then, Rochester was a company town, and the company was Kodak. They were the six hundred pound gorilla in the camera business and film business. It wasn't until the 1970s that Fujifilm started to take hold and take over a larger and larger share of the market. Kodak's misadventure into instant cameras ended up with one of the largest patent infringement lawsuits in history, and really set in motion the modern patent era.

But digital cameras were the downfall of Kodak, even though Kodak offered its own line of digital cameras (which apparently were not very reliable, although I had two of them).  Smartphone cameras were the nail in the coffin.  It seemed to happen almost overnight. Suddenly the Fotomat booth disappeared from the strip malls, and the local drug Store stopped selling and developing film. Film cameras went away rather quickly as digital cameras became easier to use and had longer-lasting batteries and higher resolution.  Kodak declared bankruptcy.

The company reorganized and today they are doing... I'm not sure what they're doing. In fact, when some people tried to explain to me what Kodak does for a living, and they couldn't explain it to me in ten words or less, I knew something was up.

Kodak provides packaging, functional printing, graphic communications and professional services for businesses around the world. Its main business segments are Print Systems, Enterprise Inkjet Systems, Micro 3D Printing and Packaging, Software and Solutions, and Consumer and Film.
I am not sure what any of that means, only that it sounds like a pretty competitive number of businesses they are in, that don't seem poised to take off like a rocket, in terms of profitability or everyone having to have their product.  Film is dead.  Printing is dead. Paper is dead. These are dead and dying businesses with no spectacular future in them.  About as exciting as selling PC's these days.

This isn't the next Microsoft or Apple, but rather a rather typical commodity business.  The P/E ratio and earnings per share are nothing to write home aboutWhy on Earth would anyone hype this stock? It is about as exciting as General Motors.  They make things - commodity items that other people make as well, at very competitive prices, with very narrow profit margins. There is no secret sauce here, no "moats" as Warren Buffet would like to have, no.... nothing.

A couple of years ago at the height of the Bitcoin madness, Kodak announced they're going to get into cryptocurrency.  I never heard anything more about that, but it did cause the stock price to spike. One wonders whether or not the announcement about getting into cryptocurrency was strictly for the purpose of jazzing up the stock price at the time.  One wonders....

Today, Kodak is a subject up some controversy as they supposedly got a huge loan from the government to produce "drug ingredients" whatever those are, which seems like an interesting thing for a former film company to be doing. But apparently, prior to the announcement of this government largess, the stock started trading rapidly which totally reeks of insider trading.

Now it remains to be seen whether they get this government loan or not, or whether they intended to get it all along, and perhaps the whole purpose of the thing was just merely to manipulate the stock price.

Like I said, when several readers asked me about Kodak stock and whether it's a good investment, I get suspicious that something was up - and that something may be stock manipulation and a pump-n-dump scheme.  I don't give stock tips here and I don't suggest that people invest into things that are hyped on the Internet or on a financial channel. Usually, after something's gone up in value, it's too late to invest in it. Also, the people who are hyping these stocks are the ones who are buying them before you do and making a lot of money off of you.  If you hear about some investment on television or the Internet, chances are, it is too late to invest in it.

UPDATE 2021:  Here is the stock price from 2020 (when I wrote this blog entry) until today.  As you can see, on July 29th, the stock price peaked at $33 a share, and then went back to languish in the sub-$10 range, where it remains today.  Clearly somehow this stock price was manipulated, and it was no coincidence that several readers (or "readers") asked me about this stock at that time.  Someone was hyping this stock!

* * *

One thing is clear:  In recent days, someone made an awful lot of money selling Kodak stock for as much as $33 a share, when it was trading days before at $5 a share.   And the people who bought at $33 a share, are now looking at a 70% loss on their holdings.  This has all the hallmarks of a classic pump-and-dump.

These recent events make me wonder whether Kodak exists simply as a placeholder for other people's fantasies.  In other words, it's just a pump-and-dump company whose stock price can be hyped with the announcement of some new product or new government contract, regardless of whether they follow through with any of this.  Or it is possible outsiders are using the company as part of their own schemes.   Maybe someone in the Trump administration leaked out this loan information - Eric!

If that's the case, then it is the perfect modern company for Trumpian America - a company with no substantial business plan whatsoever other than to make money for the insiders by manipulating the stock price.

It's sort of like Enron, only without the energy.

UPDATE 2023:  There is money to be made in these old rust-belt companies in Central New York and the midwest - in manipulating their stocks!  Kodak isn't about to come roaring back to life with some new "must-have" product - that rarely happens ever, in the marketplace, but it doesn't stop the stock manipulators from selling "The Next Big Thing!™" to the plebes.  If you look at the history of Kodak, post-bankruptcy, you can see there isn't a lot of "there" there.  In fact, they are losing money and a second bankruptcy (and maybe liquidation this time) might be in the cards.

Stop believing in "The Next Big Thing!™"

If you read the Wikipedia entry for the company, it seems in post-bankruptcy their only real business is in supplying film stock to the motion picture industry.  How long that will last in this digital age remains to be seen - digital imaging is far cheaper and more flexible than film - and most "film" is reduced to digital images when shown in movie theaters.

The other "businesses?"  Mostly licensing the trademarks or their stupid venture into "crytpo" which rightfully went nowhere (and sounds scammy to me!).   Before going backrupt, Kodak "borrowed" millions from KKR, so I presume in Chapter 11 bankruptcy, they became major shareholders.  If you are looking to see who might be manipulating the share price.... there's a place to look!

On March 12, 2014, Kodak announced that Jeffrey J. Clarke had been named as chief executive officer and a member of its board of directors.[143][144][145] At the end of 2016, Kodak reported its first annual profit since bankruptcy.[146]

In recent years, Kodak has licensed its brand to a number of other companies. The California-based company JK Imaging has manufactured Micro Four-Thirds cameras under the Kodak brand since 2013.[23][147] The Kodak Ektra, a smartphone, was designed by the Bullitt Group and launched in 2016.[148] Digital tablets were announced with Archos in 2017.[149] In 2018, Kodak announced two failed cryptocurrency products; the cryptocurrency KodakCoin, which was developed by RYDE Holding, Inc.,[150] and the Kodak Kashminer, a Bitcoin-mining computer which was developed by Spotlite.[151]

In 2016, the Kodak spinoff company eApeiron was founded with assets acquired from Kodak and an investment by Alibaba. The company's mission is to eliminate “knock offs” and promote authenticity.[152]

Despite the pivot to digital technology, film remains a major component of Kodak's business. The company continues to supply film to the motion picture industry after signing new agreements with major studios in 2015 and 2020.[20] In 2022, Kodak announced it would hire new film technicians after film photography experienced a revival among hobbyists.[21][153]