Shopify fires back after attack by U.S.-based short-seller
‘Vigorously defend our business model’
Shopify Inc. fired back Thursday after being accused by a U.S.based short-seller of promoting a “get rich quick” scheme.
“We vigorously defend our business model and stand resolutely behind our mission and the success of our merchants,” said Shopify in a statement.
The Ottawa-based e-commerce company was responding to allegations levelled by Citron Research, which accused Shopify in a report Wednesday of being “the promoter of the hottest new ‘get rich quick’ scheme on the internet.”
Shopify’s stock dropped 11.5 per cent on the Toronto Stock Exchange after the release of the report and the publication of a video featuring Citron managing editor Andrew Left, who highlighted YouTube videos referencing the “Shopify millionaire” and touting the company’s websites. The stock was trading 3.3 per cent lower to $124.5 on the Toronto Stock Exchange in mid-morning trading on Thursday.
“They’re not selling them to business owners, they’re selling them to people as opportunities to get rich quick,” said Left in the video. Both he and the report likened Shopify to Herbalife Ltd., which agreed in 2016 to restructure its business and pay $200 million to settle allegations made against it by the Federal Trade Commission (FTC).
According to a FTC press release dated July 2016, the agency had accused Herbalife of having “deceived consumers into believing they could earn substantial money selling diet, nutritional supplement, and personal care products.” The settlement with the FTC prohibited Herbalife from claiming that its members could “‘quit their job’ or otherwise enjoy a lavish lifestyle.”
Citron noted Shopify had posted on its Facebook page that “2,700 people become millionaires each day,” and said there were 92 mentions of the word “millionaire” on Shopify’s website.
Brian Belski, chief investment strategist at BMO Capital Markets, told BNN Wednesday that he had been asked about a month ago why he didn’t own Shopify, and said it was because “I don’t understand the company.”
“We like to buy companies that we understand,” Belski added. “I believe that we’re heading into a period of investing that you want to own transparent assets. I just don’t know how they make money. I don’t understand the model.”
Shopify offers online stores, point-of-sale systems, and support services to merchants.
National Bank Financial analyst Richard Tse wrote in a report Wednesday that the risk to Shopify’s financials was with “transient subscribers who do not represent a meaningful portion of value for Shopify.”
“In our view, we can’t unequivocally rule out that this negative report will not surface some regulatory scrutiny even if we think it’s remote,” wrote Tse.
“In the short-term, there’s little doubt it will weigh on the stock despite what we believe to be an unchanged fundamental outlook.”
Tse also said that the situation could “open a window” for investors who may have missed out on the steady rise of Shopify shares, which had surged more than 284 per cent since their 2015 debut, and were up more than 133 per cent this year alone before Citron’s allegations.
Shopify said in its statement that it is “committed” to fighting against the decline of entrepreneurship.
“Shopify’s growing community of entrepreneurs includes makers, creators and innovators, from students trying to pay for school to merchants who have successfully scaled their businesses,” the statement said.
The company said that every 90 seconds a store using Shopify makes its first sale, that over 131 million consumers have made purchases at a store using Shopify over the past year, and that stores using Shopify generated $10.7 billion in gross merchandise volume in the first six months of 2017.
“Shopify has always strived to take the path that leads to more entrepreneurs by designing its platform to remove the technical, operational, and financial barriers to enable anyone, anywhere, to build, grow, and scale a business,” the company added.
Meanwhile, at least one law firm, California-based Girard Gibbs LLP, has said they are investigating the claims.