On Election Day, Facebook and Twitter Did Better by Making Their Products Worse; Short report on Penumbra; Nikola's earnings, website change, and subpoenas; Katharine the babysitter

1) Though I think their stocks are great buys, I've strongly criticized Facebook (FB), Twitter (TWTR), and Alphabet (GOOGL) subsidiary YouTube for failing to rein in abuses of their all-powerful platforms by liars, extremists, racists, foreign adversaries, and others.

Thus, it's only fair that I give them a shout-out for apparently doing a much better job on this front before, during, and after last week's election: On Election Day, Facebook and Twitter Did Better by Making Their Products Worse. Excerpt:

That gust of wind you felt coming from Silicon Valley on Wednesday morning was the social media industry's tentative sigh of relief.

For the last four years, executives at Facebook, Twitter, YouTube, and other social media companies have been obsessed with a single, overarching goal: to avoid being blamed for wrecking the 2020 U.S. election, as they were in 2016, when Russian trolls and disinformation peddlers ran roughshod over their defenses.

So they wrote new rules. They built new products and hired new people. They conducted elaborate tabletop drills to plan for every possible election outcome. And on Election Day, they charged huge, around-the-clock teams with batting down hoaxes and false claims.

So far, it appears those efforts have averted the worst...

The platforms' worst fears haven't yet materialized. That's a good thing, and a credit to the employees of those companies who have been busy enforcing their rules.

At the same time, it's worth examining how Twitter, Facebook, and YouTube are averting election-related trouble, because it sheds light on the very real problems they still face.

For months, nearly every step these companies have taken to safeguard the election has involved slowing down, shutting off or otherwise hampering core parts of their products – in effect, defending democracy by making their apps worse.

They added friction to processes, like political ad-buying, that had previously been smooth and seamless. They brought in human experts to root out extremist groups and manually intervened to slow the spread of sketchy stories. They overrode their own algorithms to insert information from trusted experts into users' feeds. And as results came in, they relied on the calls made by news organizations like the Associated Press, rather than trusting that their systems would naturally bring the truth to the surface.

2) My friend and former student Gabriel Grego, of Quintessential Capital Management, just released a short report on medical-devices maker Penumbra (PEN). You can read it and watch his 37-minute interview with famed short-seller Carson Block here.

Here are the first three paragraphs of Gabriel's report:

Quintessential Capital Management ("QCM") has performed an in-depth investigation into Penumbra, Inc. (PEN), a U.S. manufacturer of medical devices for the treatment of stroke and other vascular pathologies. Our firm conclusion is that Penumbra's flagship device, the Jet 7 Xtra Flex, has a structural design flaw that makes it prone to critical malfunctioning. Unlike competing devices that have a good safety record, in 14 months on the market, Penumbra's "killer catheter" has already malfunctioned at OVER 200 times, killing 17 patients and leaving 39 others with brain injuries.

We have compiled convincing evidence that Penumbra knew or should have known about this issue early on but chose not to pull the device off the market, even though it continues to malfunction at an alarming rate. In a late and misleading notice to healthcare providers, Penumbra effectively tried to shift the blame to doctors for its device's malfunctions, while at the same time attempting to keep evidence from us.

After receiving expert opinions from multiple surgeons and former senior FDA personnel, we are confident that Penumbra's flagship device may be on the verge of a class 1 recall by the FDA. Moreover, the deaths and injuries that already occurred as a result of the device's malfunctions make Penumbra vulnerable to a crippling product liability class action lawsuit (it has already attracted the attention of leading product liability and medical malpractice law firms).

I haven't independently verified Gabriel's work... but knowing him and his track record, I have no doubt that his report is correct – which is bad news for a high-flying stock trading at 16 times revenue.

3) Following up on another company targeted by an activist short seller, electric-truck developer Nikola (NKLA) reported third-quarter earnings after the close yesterday showing zero revenue and rapidly accelerating losses.

The company and its investors are counting on closing the deal with General Motors (GM), but I don't think it's going to happen. In the press release, Nikola did little to dispel concerns:

On September 8, 2020, Nikola announced a strategic partnership agreement with General Motors Co., which contemplates General Motors receiving equity stake in Nikola in exchange for various in-kind services. The transaction has not closed, and Nikola is continuing its discussions with General Motors. Nikola will provide further updates when appropriate or required.

During the subsequent conference call, management was evasive about the status of the deal. But it's not a promising sign that, yesterday evening, the company changed its home page from this (which features the Badger truck that's supposed to be made by GM, using Nikola's technology):

To this (nothing about the Badger):

Also, Nikola revealed the following in the 10-Q it filed yesterday:

Regulatory and Governmental Investigations

On September 14, 2020, the Company and five of its officers and employees received subpoenas from the SEC as part of a fact-finding inquiry related to aspects of the Company's business as well as certain matters described in a report issued on September 10, 2020 by Hindenburg Research LLC (the "Hindenburg Report"). The SEC issued subpoenas to another three of the Company's officers and employees on September 21, 2020. The SEC issued subpoenas to Nikola's directors on September 30, 2020. The Company and Trevor Milton also received grand jury subpoenas from the U.S. Attorney's Office for the Southern District of New York on September 19, 2020. The Company also received a grand jury subpoena from the N.Y. County District Attorney's Office on September 21, 2020. The Company has cooperated, and will continue to cooperate, with these and any other regulatory or governmental requests.

I continue to recommend avoiding this stock with a vengeance!

4) I made this sign for Katharine and tried to persuade her (without success) to hold it up while sitting on a bench in a high-pedestrian-traffic area in Central Park – now that would have been funny! She did, however, give me permission to send this picture around via e-mail and post it on my social media...

(She's actually working part-time at the local bookstore and – COVID-19 permitting – is doing a semester program in Central America starting in February, but she seriously is available for some babysitting!)

Best regards,

Whitney