Why is the Weebit Nano share price crashing 10% today?

Short sellers will be celebrating today's decline. But why are its shares falling?

The Weebit Nano Ltd (ASX: WBT) share price is having a difficult session on Wednesday.

In morning trade, the semiconductor company's shares are down 10% to $3.48.

A man sitting at a computer is blown away by what he's seeing on the screen, hair and tie whooshing back as he screams argh in panic.

Image source: Getty Images

Why is the Weebit Nano share price crashing into the red?

Investors have been hitting the sell button today after the company released its quarterly update and revealed barely any revenue.

According to the release, Weebit Nano received its first intellectual property (IP) licensing revenues for its embedded ReRAM during the quarter. This pulled in revenue of $457,000 for the period.

As a comparison, the current Weebit Nano share price implies a market capitalisation of approximately $670 million.

This is higher than the market capitalisations of companies such as Core Lithium Ltd (ASX: CXO), Kogan.com Ltd (ASX: KGN), Myer Holdings Ltd (ASX: MYR), and Tyro Payments Ltd (ASX: TYR).

Given this woeful revenue generation and lofty valuation, it won't be a surprise to learn that short sellers are targeting it and labelling it as another Brainchip Holdings Ltd (ASX: BRN) meme stock.

Nevertheless, management remains very positive on the future and is spending heavily on its operations. This led to an operating cash outflow of $12 million for the quarter, reducing its cash balance to $72 million from $84 million.

It also believes that these early revenues are just the tip of the iceberg, though time will tell if that is the case. It said:

While initial proceeds from licensing fees are relatively small, totaling A$457,000, they demonstrate the Company's significant technical progress in recent years. Weebit's embedded ReRAM will generate revenues from foundries, IDMs, and product companies in three main ways: licensing fees for design and manufacture; engineering fees for designs and processes; and royalties per customer use. Royalties will be received once customers begin shipping end products.

In 2024, Weebit expects to continue receiving initial small licensing and NRE payments from its existing customers, as well as others which will be signed up during the year. As it takes customers more than a year and a half from when they engage with Weebit until they enter mass production, no royalty payments are expected in 2024.

The Weebit Nano share price is down 30% over the last 12 months.

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Kogan.com and Tyro Payments. The Motley Fool Australia has recommended Kogan.com and Tyro Payments. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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