Noted short-seller and Muddy Waters founder Carson Block announced today the firm has taken a short position in online health marketplace eHealth Inc. $EHTH
"Squawk Box,"
said he does not believe the company is a "fraud," but it is "in our view a massive stock promotion." Shorting a stock is a bet that it will go down. "It's a perfect storm of a new management that really wanted, in our view, to pump the stock," Block said. "From a legal perspective it's not a fraud. Intellectually, it's fraudulent."Shares of eHealth fell more than 17% at Wednesday's open after Block's premarket disclosure. Santa Clara-based eHealth ended Wednesday down 11.7% to $103.20 each.
Block also casts doubt on eHealth's growth since 2018, saying it's been driven largely by direct response TV advertising. That strategy has resulted in acquiring customers with high churn rates, he added. The high-churn customers complicate eHealth's revenue models, which are based on "higher-quality, stickier enrollees," Block argued. "They're basically booking all that theoretical revenue today and that is the crux of the problem.
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