Innodata, the biggest joke of AI stocks which will fall back to the Earth.

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Innodata Inc: The biggest AI joke of the stock market

1) Innodata Inc.(INOD) is an American data engineering company advertising its involvement in AI to drive up the share price. Even though it claims to be in the AI space, we think that Innodata’s recent increase of 287% YTD is an atrocious pump-and-dump scheme facilitated by its false claims of being an AI company.

2) Innodata, a while ago, was just an ebook business. Its business involved turning paperback books into digital e-books by transcribing them manually and delivering them to e-book services:

They were essentially a business digitising documents. That’s it

3) So that begs the question, how did Innodata Inc., run by a 62-year-old executive at the tail end of his career, turn from an e-book data transcriber into a ‘cutting-edge AI’ platform?
We think it didn’t, and the market is unaware of this.
In multiple points in history, INOD has changed business themes, pump its stock price, and witness a huge crash.

4) Innodata’s revenue has been mostly flat throughout the ‘AI revolution’. There has been no growth in the business, and it does not actually play any part in the AI wave, but it sure is trying to be a part of it. Its DDS segment(Digital Data Solutions), which it advertises as its ‘AI division’, has its revenues in a decline:

Reasons why we think Innodata Inc. is an imposter among the AI companies and why we think it would fall to the Earth:

• INOD’s main ‘AI’ business is just basic data collection and annotation:
  Just like its e-book days, the only thing Innodata is involved in is merely helping with the data collection process and merely ‘correcting’ and ‘editing’ some of the potentially faulty data, and definitely not being involved with ‘Generative AI transformation’ as it claims to be:
  

  

  

  
  
  
  Even their ‘success stories’ page has no information about any AI involvement in their services:
  

  

  
  Under INOD’s ‘Applied AI’ section on their website, there is more evidence that INOD is just a data company associating itself with AI. The solutions they provide are hardly related to AI for the most part:
  

  

  
  
  Innodata’s website’s ‘AI chatbot’, which we think is an example of the ‘Conversational AI’ shown in the image above, is just composed of a few if-statements rather than actual Generative AI:
  

  

• Innodata is essentially just a Business Process Outsourcer, instead of using AI solutions as a company.
  Innodata has offices in numerous regions, with most of them concentrated in the Philippines, India, and Sri Lanka:
  

  

  
  
  However, we have evidence from numerous sources that Innodata, rather than having AI models to help with its business, outsources work to these regions, where engineers are sitting day and night transcribing data from different sources. We feel it is pathetic that Innodata is hoarding around as an AI company while its core operation is having its Asian employees just convert data from one format to another, and maybe some occasional annotation:
  

  

  

  
  Source: JobIndex, Innodata Phillippines
  
  Source: Google, Innodata Sri Lanka

• Insider Sales are up through the roof:
  Rapid insider sale of shares is one of the most bearish things a company could do. If Innodata is an AI company, why would the insiders sell their stake in their company at a point in time when AI development is expected to explode even more going forward? What’s concerning is even the CEO and CFO have been involved in this; it’s not just the company's directors.
  

  

• Innodata’s concerning money management:
  Innodata’s earnings have been depreciating at about -41% annually, while revenues have been increasing at about 7% annually. ROE sits at about -63%, ROA at -22.7% and ROCE at -35%. So, it is clear that Innodata’s money management is poor.

• Innodata has crafted an impressive story of its inclusion in the AI space, by constantly reminding investors of its ‘AI contracts’, but we think all of this is a hugely glorified piece of crap:
  

  

  

  

  

  
  
  
  It is pretty clear that Innodata has been driving up the share price by using these headlines with ‘AI’ as the buzzword, but it is pretty evident that Innodata is hugely overestimating its involvement with the Artificial Intelligence industry, just like they have done in the past

• Innodata has exhibited pump-and-dump-like behaviours in the past, by potentially misleading investors and glorifying themselves:
  From the image below, it is clear that Innodata has had a lot of bubbles in the past, where the share price rallied a huge amount and comes back crashing down:
  

  

  
  I used WayBack machine to capture how Innodata’s website looked during each of these bubbles:
  1) Bubble #1: 2001, INOD is an ‘Outsourcing partner’
  

  

  
  
  
  2) Bubble #2: 2005, INOD is into ‘Knowledge management and ‘Publishing, Media and Information Services;
  

  

  
  3) Bubble #3: 2008, INOD is into ‘Knowledge Process Outsourcing’
  

  

  
  
  4) Bubble #4: 2009, Same as previous
  
  5) Bubble #5: 2012: Innodata is into publishing.
  

  

  
  6) Bubble #6: 2021: INOD slowly morphs into an ‘AI company’:
  

  

• Innodata, an American company, is being audited by BDO India:
  

  

  
  This, for us, is a huge red flag. There are so many inconsistencies that could arise from this. We think it is very odd that Innodata, the self-proclaimed maker of ‘data for the world’s most valuable companies’, is being audited by a BDO office that is not even from the US.

• Innodata is trading at a huge overvaluation relative to its peers:
  Higher-than-perceived overvaluation.
  In 2023 Q1 Earning transcript, we can see the following interaction between an analyst and INOD’s CEO:
  

  

• This is a pathetic analysis since I’m guessing the analyst is comparing INOD to the big AI companies, like MSFT, NVDA, GOOGL, META, etc.
  
  But, when we compare INOD to its peers(Data engineering companies), we see a different picture:
  

  

• Assuming this ‘analyst’ is saying that INOD has a market cap 2x of annual revenue, let’s compare INOD with the names above(companies that ACTUALLY are in the same field as INOD):
  INOD mkt/Rev ratio: 4.64
  FiscalNote Mkt/Rev ratio: Slightly less than 3
  UIS crop: Mkt/Rev ratio: Annual Revenue more than the Market cap

• Ealixir Inc: Mkt/Rev ratio: Annual revenue more than the Market cap
  BBAI: Mkt/Rev ratio: 1.6

• III: Mkt/Rev ratio: Annual Revenue more than the Market cap
  CTLP: Mkt/Rev ratio: 2.6

• CTG: Mkt/Rev ratio: Annual Revenue more than the market cap

• Conclusion:
  Innodata is not an AI company. It is hardly a data company that just outsources its work to a bunch of people in Asia to do their ‘copy-paste’. It is astounding how such a crappy company as Innodata has managed to augment its involvement with Artificial Intelligence and drive its share price so high.
  Its insiders are dumping shares nonstop, and they certainly don’t seem too shy about it. This could be the most overvalued AI stock in the stock market, as it is up 287% YTD. The market has not yet realised that this is a joke of a company, and it is just trying to falsely ride the AI wave. Not one sane person would buy this stock if they knew of the insane overvaluation and its business background. Even after a collapse of about 50-60%, we would deem it overvalued. We have seen pump-and-dumps in this stock, and now it has completed its pump. The only thing left is for it to fall back to its ‘regular’ price of about 2-3 dollars per share.