Shopify falls as Citron calls for investigation
Stock drops 11% after analyst disputes company’s claim it mints millionaires
Shopify Inc. tumbled as much as 11 per cent after Citron Research began shorting the stock, saying the Canadian e-commerce company’s claims that it’s minting millionaires should be investigated, and questioning its ability to scale up. In a stinging tweet and video rebuke, Citron founder Andrew Left called Ottawa-based Shopify a “get-richquick” scheme and “dirtier” than Herbalife, which has been targeted by regulators for deceptive business practices.
Sheryl So, a Shopify spokesperson, said the company declined to comment on Los Angeles-based Citron’s claims.
Shopify provides websites, payments and shipping for online merchants, and has become Canada’s tech darling, gaining eightfold from its initial public offering in May 2015 and becoming one of the world’s best-performing tech stocks.
The shares fell as much as 11 per cent to $128.85, the biggest intraday drop since November 2016. They are up 124 per cent this year.
Left, who’s perhaps best known for his unsparing assessments of Valeant Pharmaceuticals International Inc., urged the U.S. Federal Trade Commission (FTC) to look at Shopify’s claims that members can quit their jobs and become millionaires. A post on Shopify’s Facebook page says that “2,700 people become millionaires each day,” and the company brands itself as “the online store for someday millionaires.” Nutrition company Herbalife agreed to pay $200 million (U.S.) and make sweeping changes to its businesses after the FTC prohibited the company from claiming that “members can ‘quit their job’ or otherwise enjoy a lavish lifestyle.”
Left also accused Shopify of paying bloggers and influencers to promote the company without disclosing those relationships and said the company “has shown no scalability” over the past few years.
“This is not an $11-billion company,” Left said in a video posted to Citron’s website. “This needs to get completely looked at by the FTC and completely looked at by Wall Street.”
Kevin Krishnaratne, an analyst with Paradigm Capital Inc., said there are no issues with the company’s ability to scale profitably. The company beat analysts’ revenue estimates for the ninth quarter in a row in the latest earnings report, boosted forecasts for the current quarter and signed up a record number of new merchants.
“They continue to go to the top line, and so we still see that profitability coming in 2018,” Krishnaratne said. He is one of18 analysts who has a buy rating on the stock, along with 12 holds and one sell, according to ratings compiled by Bloomberg.
He also said he doesn’t think the
“They (Shopify) continue to go to the top line, and so we still see that profitability coming in 2018.”
KEVIN KRISHNARATNE ANALYST WITH PARADIGM CAPITAL
majority of Shopify’s user base thinks they’ll become millionaires. “The company appears to appeal to users that maybe have a day job already and are kind of side-gigging,” he said. Research from McKinsey & Co. suggests that 20 per cent to 30 per cent of the working age population in the U.S. and Europe engage in independent work, or the so-called gig economy, assisted by the rise of digital platforms such as Uber and Airbnb.
These trends are positive for Shopify, Krishnaratne said in an email. Paradigm Capital doesn’t own the stock.