XpresSpa Group Inc (NASDAQ: XSPA) is having a rough start to the trading session in the premarket hours, trading on losses of more than 15% early on. The declines come after the company announced its financial results, which showed a dramatic decrease in revenue on a year over year basis.
While this has the bears roaring and the shorts shorting, the fact of the matter is that they may quickly lose their shorts. Here are three things you need to know about XSPA:
1. XpresSpa Reports Financial Results
As mentioned above, XpresSpa reported its financial results for the fourth quarter and full 2020 year. To address the elephant in the room first, revenue came in at around $300,000. That’s a stiff jab to the noggin when you think that a year ago, the company generated revenue in the amount of $10.9 million.
So, what’s the deal?
Well, XpresSpa temporarily closed its core, in-airport spa business, when the COVID-19 pandemic took hold. Instead, the company has shifted focus to become a health and wellness play, offering rapid COVID-19 testing services in the airport setting.
With the core business not operating at the moment, dramatic declines in revenue are to be expected. However, unlike many that shut down their businesses as a result of the pandemic, the company’s shift in focus to an in-airport COVID-19 testing facility means that even with the spa not operating, revenue is being generated.
So, while bears argue that the big miss in revenue is the result of poor management as they short the stock, the fact of the matter is that the declining revenue is expected, and ultimately, management has been shifting focus for about a year now in an attempt to continue to drive shareholder value.
You know the old adage, “Rome wasn’t built in a day.”
Well, XpresSpa is essentially rebuilding Rome. As it continues to do so, revenue will rise and the potential here continues to be appealing.
2. Airport Testing Demand Is Likely To Rocket
Recently, we’ve been hearing quite a bit about vacation passports. Essentially, there is a massive group of people, including experts, government authorities, and consumers, that believe that before getting on an airplane, consumers should have a COVID-19-related passport that tells officials at the airport that they’ve been vaccinated. This type of passport would step on the privacy of those that are required to have it, and those that don’t.
Keep in mind, in the United States, medical records are a touchy subject and these passports would essentially be like sharing your records with everyone.
While I don’t think a travel passport to fly, will fly, no pun intended, I do believe that there is a need for rapid testing prior to travelers being seated on airplanes. The fact of the matter is that XpresSpa is the only company that’s got the infrastructure in place to do so.
Some even argue that the Biden Administration will provide grant funding to fund rapid COVID-19 tests for those that travel, which leads to a major question:
Can you think of any other company this government funding would go to?
3. XpresSpa Has Been Proving The Bears Wrong Since COVID-19 Started
When COVID-19 first hit and businesses started being shut down, XpresSpa announced that it would shift focus from massages and facials to testing facilities in airports. When that announcement was made, it led to a flood of conversation on social media.
As I dug through the conversation, I remember reading countless posts about how this simply wouldn’t be possible. Airport officials would never allow for COVID-19 testing in their buildings. The first station would never see the light of day. You know, all of the doom and gloom the bears wanted to peddle.
Well, here we sit, watching as the company has several in-airport locations across the United States. Not just in any airports either. No, there are testing facilities in some of the largest, most active airports in the United States.
Now, the bears say the company will never turn a profit from coronavirus testing. They say that with vaccines rolling out, there will be no need for testing in the future and that the company is simply wasting its, and investors’ money.
Well, I remind you, bears have been wrong in the past.
The fact of the matter is that there has been no other virus in the history of the United States that led to a complete shutdown of the economy. Even after vaccines reach everyone, there will be an inherent fear associated with the virus that will lead to increasing demand for testing.
All in all, this is not a short term play at all. The fact is that testing is here to stay for the long term, and XpresSpa is poised to be a prime beneficiary of that fact.
The Bottom Line
I get it, dramatic declines in revenue and growing losses are concerning. But, Rome wasn’t built in a day. The fact is that XpresSpa is embarking on what will likely prove to be an overwhelmingly profitable venture in the long run.
Sure, revenue is down, but what else would you expect from a company that was forced to shut its doors and change focus? The fact is that the transition takes time, and the fact that the company is already generating any revenue through COVID-19 testing is promising.
All in all, if you’re not strongly considering buying this dip, you may be missing out in a big way.