This analysis was first published in SvD Näringsliv, in Swedish, on February 22nd, 2023. This piece was translated from Swedish by Claude. Some phrasing may differ from a human translation.

Truecaller has long been stalked by short sellers. Now comes something harder to defend against — bad results.

There’s a well-known industry truth that when a company is doing well, it’s because their product is fantastic. When things go badly, it’s because the marketing is lousy. If you work in marketing, you can never win.

Something similar applies to the “macroeconomic environment” that all companies reference constantly. The explanations listed companies offer for their poor numbers often point to a weak economy.

When things go up, on the other hand, that’s down to their own merits.

You could call it “Schrödinger’s economy” — it exists only when it benefits the company’s story.

It’s through that lens that you can read Truecaller’s Alan Mamedi’s CEO statement from Wednesday’s quarterly report, in which he describes how weak global advertising demand has pressured both prices and margins. He also hasn’t seen any signs of a turnaround so far this year.

That’s bad news for a company whose business model is selling advertising and services to mobile users.

Profitability measured as adjusted EBITDA margin fell from 50 to 30.6 percent in the latest quarter.

The share price fell sharply the moment the market opened. By early afternoon it was down around 24 percent.

Advertising markets going up and down is nothing new. It’s therefore interesting to look at Truecaller’s other revenue streams — subscriptions and so-called B2B sales (business-to-business).

That market generally moves less. But even there, there are reasons for concern. Revenue per user (ARPU) in the key market of India declined compared to the same quarter last year. Subscription revenue growth was flat from the previous quarter. On top of that, the entire segment is still too small to offset weak advertising revenue.

Truecaller’s numbers are indicative of a complicated and difficult-to-read market. Tuesday was the worst day on US markets in two months, with the S&P 500 index falling two percent. The tech-heavy Nasdaq fell 2.5 percent.

Inflation has slowed slightly in some markets, but interest rates are still rising — if anything at a slightly slower pace than before. Meanwhile, US unemployment figures are at their lowest level in 53 years.

The signals are contradictory. But thinking we can put 2022’s market collapse completely behind us looks like wishful thinking.

Even when things go badly on the stock market, there are winners. This is especially true when it comes to Truecaller, which is one of the most shorted stocks on the Stockholm Stock Exchange.

In October last year, Viceroy Research released a report calling the company a “Swedish advertising and spying app” and announced they had shorted Truecaller’s shares — that is, taken a position speculating that the stock would fall in value.

Viceroy’s objections had nothing to do with advertising market dependence, however. Rather, they claimed that Truecaller was breaking GDPR, among much else — allegations the company denied.

With the share now in freefall, the short sellers are looking good. The largest current short position belongs to Yiheng Capital Management LP, which according to Sweden’s Financial Supervisory Authority has increased its position several times since the start of the year.

Beyond the short sellers, it’s hard to spot many clear winners in this market environment. Many tech companies are working frantically to pivot from growth to profitability — a process that’s complex even in good conditions. In worse times, it’s likely to take longer, which could erode confidence in the sector as a whole.

In the US, there are signs that several tech companies need to cut costs further. Communications company Twilio laid off 11 percent of its staff in September 2022. Fast forward to February 2023, and they were forced to cut another 17 percent. Many Swedish companies are probably having similar conversations right now.

Truecaller is already profitable, though. That’s a good start. But expectations, as they say, are everything. When profitability falls by nearly 20 percentage points, those expectations have been shaken up significantly.