Shopify shares plunge after report questions operations

VANCOUVER — Shopify Inc. shares plunged more than 11 per cent Wednesday after a short-seller report alleged the e-commerce platform is overvalued and operates outside the law.

“This is not an $11-billion company,” said Andrew Left, managing editor at stock commentary website Citron Research, in a video in which he says Shopify’s business model does not comply with guidelines set by the U.S. Federal Trade Commission.

The company “has mastered the good ol’ get-rich-quick scheme,” he said, comparing its practices to those of Herbalife, which recently settled with the FTC for $200 million US and made structural changes after claiming members could “quit their job” upon joining the company.

Left, an activist short-seller whose previous Citron Research reports moved the direction of shares for the likes of Valeant and BlackBerry, said the stock should be closer to $60 US, prior to any potential involvement by the FTC.

He questions how many of the 500,000 businesses Shopify says it powers are legitimate.

He alleges Shopify’s partners recruit merchants by wooing them with promises of selfemployment and million-dollar incomes. Left points to content on Shopify’s website and social media, such as a statement that 2,700 people become millionaires daily and a sample resignation letter.

Shopify spokeswoman Sheryl So said in an email that the company “does not have a comment on Citron Research.”

The FTC’s acting director of public affairs, Peter Kaplan, said in an email that the commission’s policy is not to comment on specific companies and/or allegations.

Shopify’s stock fell $16.75 or 11.5 per cent, to $128.95 on the Toronto Stock Exchange, and $13.51 US, or 11.57 per cent, to $103.30 US on the New York Stock Exchange.

Other analysts had previously questioned the company’s high valuation.

It first went public on both Bay and Wall Streets in a dual initial public offering in May 2015, when it raised a larger-than-expected $131 million US.