The stock price plummeted! Wall Street Journal bearish on Arqit, a public quantum encryption company
Shares of British quantum encryption company Arqit (NASDAQ: ARQQ) plunged nearly 20% on April 18. Arqit's shares hit their highest level to date at $38.06 on November 30 and have since fallen to $12.49.
Arqit stock price trend on April 18
The plunge was sparked by an April 18 Wall Street Journal article titled “British crypto startup Arqit overstated its prospects, ex-employees and outsiders say.”
"When the company went public on Nasdaq last fall, its revenue included a small government grant and a small research contract, and its signature product was an early prototype that couldn't encrypt anything in practice," the article said. Stuff… Several of the clients listed by the company, including some UK government agencies, have only provided Arqit with research grants, non-binding memorandums of understanding or research agreements, but no funding and no contracts for its crypto products.”
Wall Street Journal article
The Shall law firm immediately announced that it was investigating claims of violations of securities laws on behalf of investors in Arqit. The investigation focused on whether the company made false and/or misleading statements and/or failed to disclose information relevant to investors. Another law firm, Gibbs Law Group, also announced it was representing loss-making investors in a class action lawsuit against Arqit, and called on loss-making investors to contact them.
As of press time, Arqit has responded. "Today's WSJ article appears to be based solely on unsubstantiated outdated comments from two long-leaved and disgruntled former employees. We are disappointed that the WSJ failed to mention the company in recent months. Numerous positive announcements made or other data shared with them. For example, this article criticizes a category of technology (“QKD”) that Arqit doesn’t even sell. When considering the functionality and relevance of its products, Arqit wants to make customers and The results speak for themselves and look forward to the upcoming release in May.”
The incident is still unfolding.
Arqit's response
Arqit misleads investors?
Arqit is building a cryptographic system designed to protect computer systems from quantum computers, which are predicted to one day be able to breach the security of nearly all existing commercial cryptosystems. The company says its technology will revolutionize computer security and attract customers from major corporations and the defense sector. Several former senior officials of the British intelligence agency GCHQ, as well as retired American and British generals, serve on Arqit's board and advisory committees or management.
However, according to the WSJ article, “According to former Arqit employees and others familiar with the company, as well as documents reviewed by The Wall Street Journal, Arqit gave investors too much optimism about its future revenue and the readiness and availability of its signature encryption system. the opinion of."
In April 2021, Arqit’s chief financial officer resigned after he raised concerns about the latter’s inflated contracts and unrealistic offers to potential investors, the company’s founder and chief executive, David Williams, people familiar with the matter said. worry about forecasts. Several other former employees said they shared similar concerns about the business model and technology maturity, which prompted them to leave as well.
In addition, government cybersecurity experts in the United States and the United Kingdom have also cast doubt on the usefulness of the Arqit system. People inside and outside the company warned that the encryption technology the company relies on — a protection system for the next generation of quantum computers — may never be used for niche uses unless there is a major overhaul of the internet protocol.
The article mentioned that Arqit's stated goal is to make future communication systems safe from the threat of quantum computers, which is a top concern for policymakers. In a high-level assessment shared privately with Arqit in the summer of 2020, British cybersecurity officials questioned the viability of Arqit’s proposed approach to encryption, according to people familiar with the matter.
When asked about the negative comments, a spokesman for the UK's National Cyber Security Centre (NCSC) said the agency "helps Arqit understand the security characteristics of products and systems, including those in the quantum domain. We do this on a case-by-case basis." , and is confidential.” Arqit said through a spokesman that it “has an active and ongoing relationship with the NCSC” and that the agency has not reviewed its existing technology.
The article mentions that the National Security Agency (NSA) and the NCSC have issued separate assessment reports in recent years warning against the use of satellite-based encryption systems that Arqit plans to integrate into its current products in the next few years. A spokesman said the NSA said its warnings were not tied to any particular vendor.
The satellite-based encryption system mentioned here, Quantum Key Distribution (QKD), is currently in the lead in China. Regarding why the NSA opposes QKD and why China cannot give up QKD, it is recommended to read the Photon Box article "The United States Stops Quantum Communication? ".
The article mentions that Arqit said it “never offered QKD technology,” but instead invented a new quantum protocol that solved the problems brought about by previous iterations of the technology and combined it with a different way of serving encryption. The company said it has improved upon the QKD protocol and is building a system that is completely different from earlier technologies.
In addition to the technical aspects, the article also raised concerns about Arqit's revenue and profit forecasts.
In May 2021, a month after Arqit's chief revenue officer resigned, when the company announced the merger of the special purpose acquisition company, it publicly announced that the startup would quickly become highly profitable, with projected 2025 revenue of $660 million, depreciation and taxes Revenue before equal costs was $447 million.
Arqit claims that it will earn a lot of revenue in the future as its products have already been released and sold well. In a pre-IPO investor presentation, Williams said: “Customers are using Arqit products today, and they generally see it as an important part of the future of their technology. Quantum cloud products are built to serve, and we’ve signed 130 million U.S. dollar commitment revenue contract.”
Most of Arqit's promised revenue doesn't come from product sales, and at the time of the public launch, the company only had an early prototype of the encryption system, the people said. “Several of the clients listed by the company, including some UK government agencies, have only provided Arqit with research grants, non-binding memorandums of understanding or research agreements that have no funding and no contracts for crypto products.”
When Arqit's encryption system first hit the market last September, no commercial customers were using its real-time data encryption system, which couldn't meaningfully use any of the common internet protocols needed to do almost anything online, the people said.
The company has signed two master distribution agreements with BT and Sumitomo for satellite components that have not yet materialized in its technology, which can be cancelled under certain conditions, they said. Arqit spokesman Charles Palmer said it was "incorrect and misleading" to say Arqit's main contract could be cancelled, and its main distribution agreement included guaranteed revenue.
Through a spokesman, BT declined to comment on what it said was a "private contractual agreement"; Sumitomo declined to comment, citing nondisclosure agreements. People familiar with the Arqit contract said the company has signed a master distribution agreement with BT for satellite components that have yet to materialize in its technology.
Another piece of evidence that suggests Arqit is overstating its revenue is that in securities filings, Arqit was not so clear about its future revenue: customer contracts depend on "successful delivery of operational technology, which is still in development," and some The contract is contingent on the successful completion of the pilot project with the customer.
Inside the company, Williams was often an annoying, erratic person, another factor in addition to product skepticism among many who left the company, former employees said. Former human resources chief Jane Bashford-Hobbs has lodged a formal complaint with a UK court alleging Williams bullied staff and Arqit discriminated against gender in pay.
The Wall Street Journal said Williams declined to comment through a spokesman.
Link:
[1]https://www.wsj.com/articles/british-encryption-startup-arqit-overstates-its-prospects-former-staff-and-others-say-11650274200?mod=rss_Technology
[2]https://www.businesswire.com/news/home/20220418005618/en/INVESTIGATION-ALERT-The-Schall-Law-Firm-Encourages-Investors-in-Arqit-Quantum-Inc.-with-Losses- of-100000-to-Contact-the-Firm
[3] https://www.businesswire.com/news/home/20220418005590/en/Lost-Money-in-Arqit-Quantum-Inc
[4] https://docs.publicnow.com/viewDoc?hash_primary=354A0DB54A2D2CA8A6B1A0FEDCFC372D3514A47B
