Legacy companies with outdated business models have become all the rage in the past year for speculators seeking to revive essentially dying brands. We’ve all seen the resurgence of Gamestop—the sleepy brick-and-mortar retailer selling a product that everyone just buys online. Similar gains from AMC/Bed, Bath, and Beyond/etc. make it clear—there is an entire herd of downtrodden companies poised to make a comeback. Traders can either sit on the sidelines with their thumbs up their ass, or they can join the party. Kodak will be the next big thing. Here’s why.
Kodak is one of those ancient companies that literally goes back to the days of Thomas Edison. It was founded by George Eastman and Henry Strong in 1892, and eventually became a near monopoly in the photographic film industry. They adopted the razor-and-blades/printer-and-ink business model. They’d sell a camera for a relatively low price, then make their money selling the film. For almost a hundred years they made serious tendies doing it.
Then digital cameras became a thing, spelling Kodak’s imminent demise. Ironically, Kodak was actually the first to develop a digital camera, but the smooth brain executives pushed back against it. The rest was history. Kodak sales declined year over year, ultimately sending the company into bankruptcy in 2012.
Bankruptcies are always messy, but Kodak was actually able to navigate it pretty well. It certainly helped that they owned all kinds of random assets that they were able to sell off in partial fulfillment of debtors’ claims. What kind of assets? Well, obviously they had some IP, and a lot of it had nothing to do with their core competencies, so that was easy to sell, and that sale in fact brought in over $500 million. They also owned a coal-fired power plant, a lease on a Times Square billboard, and all other kinds of random crap they were able to sell off. All told, they were able to exit bankruptcy relatively unscathed. Following the bankruptcy, Kodak tried to rebrand itself for the modern era. For example, in 2017, they developed a smartphone, which was obviously a total failure. It became time for them to move on.
After replacing most of the executive leadership in 2019, Kodak pivoted their focus to what they know best: photography-related businesses (film and printing), and chemicals (an industry that goes hand-in-hand with the film business). Now, although Kodak still sells its old-fashioned film to consumers, it is now primarily a business-to-business company, with two main divisions: commercial printing and advanced materials and chemicals.
The driving force behind Kodak’s resurgence will be its Advanced Materials and Chemicals (AMC!) segment. This segment of the company reflects Kodak’s deep institutional experience in chemistry, which comes from over one hundred years in film manufacturing (again, a process deeply intertwined with chemical engineering). There are four main initiatives in the AMC segment: (1) EV battery material manufacturing; (2) light blocking technology; (3) transparent antennas; and (4) reagent manufacturing. While all of these AMC initiatives are set to deliver gains in the future, the one with really deep fucking value is EV battery material manufacturing. Here’s how it works:
Kodak has spent the last year developing a “pilot coating facility” that will provide services to battery developers, including batteries to be used for electrical vehicles. The coating is applied to substrates in the batteries so that the batteries can more effectively store energy. Coating production is currently around 3 million square meters, with current maximum capacity of 80 million square meters. They are in the process of increasing production levels and are exploring other “strategic relationships with battery companies,” as noted in their last 10K.
Here it is worth reminding you that one of Kodak’s first partnerships with a battery developer was with a company called Plug Power back in 2019 . Plug was itself a WSB darling last year. Plug partnered with Kodak to use their high-speed coating process to enhance their “membrane electrode assembly technology.” They have used the technology to help build zero emission hydrogen fuel cells.
A few weeks ago, Plug Power announced that it was opening a new manufacturing facility in Albany County. The initiative is intended to complement the State of New York’s “aggressive pursuit of economic development opportunities that align with [their] nation-leading clean energy goals.” The facility will be used to expand Plug’s “GenDrive line,” which provides fuel cell solutions for electric trucks. New York, for their part, has committed to provide $45 in tax credits.
The company’s financials already reflect strong growth, as shown by the recently reported 2021 figures. Revenues increased 12% over 2020 to $1.15B. Net income increased to $24 million, whereas 2020 saw a net loss of $541 million. And the end-of-year cash balance increased to $362 million, compared with $196 million at the end of 2020. I know what you’re thinking: “oBvIOusLy 2021 financials improved, 2020 was the height of the pandemic!” Yes, but the trend was already underway even before Covid hit. Take a look at their balance sheet from 2019 (pre-pandemic) compared to end-of-year 2021:
Technical analysis, to the extent anyone cares, also supports the bullish case. The recent price action pushed Kodak firmly above its 200-day moving average, reflecting both short-term and long-term bullish sentiment.
As shown in the TA, the price has already moved up a bit over the last couple weeks, but this is still a $500 million market cap company—there’s a ton of upside on the table.
Perhaps most telling, Kodak experienced huge insider purchases over the last few weeks. Between 3/18-3/21, Director Kennedy Lewis purchased a total of 2,434,179 shares at an average price of $5.73, and last month, CEO James Continenza exercised options to acquire 100,000 shares , bringing his personal stake to 888,631 shares—a little over 1% of the company.
Remember that Kodak is the kind of company where insider purchases are especially noteworthy. Flash back to mid-2020, when the Covid vaccine was still in development. On June 23, 2020, Continenza purchased 46,737 shares at a weighted average of $2.22. Board Member Phillipe Katz also purchased 10,000 shares, at around a similar price. A month later, on July 27, the company awarded Continenza and various other executives millions of options, with strike prices generally in the $3-4 range. The next day, July 28 , President Trump announced to the world that the federal government (through the U.S. International Development Finance Corporation) approved a loan of $765 million to Kodak for the purposes of facilitating the production of pharmaceutical ingredients, sending the share price up over 2,000%. Put simply, if history teaches anything, Kodak insiders don’t make big purchases based on a general notion that the company is doing well; they buy when something major is about to happen.
Kodak failed to capitalize on the digital era years ago, and it paid dearly for that. But the company is now in the hands of forward-looking management, and they’re developing products that go far beyond film. Specifically, as the EV-industry continues to advance, Kodak is well-positioned to itself gain value, as it has recently developed technology to assist in the manufacturing of fuel cell batteries, as well as green-energy technology more generally. Newly announced manufacturing facilities by strategic partners and massive insider purchases also suggest that something big is about to go down.
Positions: 10c 5/20, 10c 7/15, 12.50c 7/15
Submitted March 28, 2022 at 05:01PM by shit-piss-fuck
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