Shopify addresses short-seller claims
CEO defends business model and says company complies with FTC regulations
VANCOUVER— Shopify Inc. reported a solid revenue increase, reached a crucial milestone a quarter earlier than anticipated and mounted a defence against “preposterous claims” by a “short-selling troll” but failed to ease investor concerns Tuesday as shares lost as much as a tenth of their worth.
The Ottawa-based online store platform posted its first adjusted operating profit as a public company in its third quarter ended Sept. 30 as its revenue grew 72 per cent compared with the same period last year.
CEO Tobias Lutke publicly addressed allegations made last month by high-profile short-seller Andrew Left of Citron Research that sent shares falling more than 10 per cent on the Toronto Stock Exchange on the day his report was released. The shares have since regained some of the ground, but then shed $11.35 or 8.09 per cent to $128.27 in Tuesday afternoon trading.
Lutke attempted to ease concerns on a call with analysts that he used to address Left’s criticism of the company’s business model in a video published early last month.
“This is going to be a fun one,” Lutke said at the start of the call, explaining the company waited nearly a month to address the allegations because it does not engage in short-term stock management. Rather, he said, Shopify reserves time each quarter to update analysts on any news. However, the company stopped short of providing information on acquisition costs and “churn rate” that Left suggested would prove his hypothesis that the company is overvalued.
On Oct. 4, Left published a video alleging the company, which provides businesses with online checkout services, doesn’t comply with U.S. Federal Trade Commission guidelines and suggesting the stock’s value is closer to $60 (U.S.) before any potential FTC involvement.
He compared the company’s practices, which he called a “good ol’ getrich-quick scheme,” to Herbalife, a direct-marketing company that a short-seller alleged was a pyramid scheme. The FTC investigated Herb- alife and the company recently had to pay a $200-million (U.S.) settlement and make structural changes.
Left alleged Shopify’s partners recruit merchants by wooing them with promises of self-employment and million-dollar incomes.
During the call, the CEO asserted the company sells an ecommerce platform — not business opportunities — and complies with FTC regulations. Much of their content shows how hard — rather than easy — entrepreneurship is, he said.
“Implying that these businesses are somehow illegitimate is an insult to their hard work,” Lutke said.
Lutke said Shopify consulted with outside legal counsel, who also believe the claims are unsubstantiated, and hasn’t been contacted by the FTC. Citron Research is “unimpressed” by the company’s response, it said in a statement, adding that it has forwarded a comprehensive folder of its allegations to the FTC.
“It’s impossible to understand the real strength of Shopify’s core business without getting specifics of their true customer acquisition cost.”
The company, which keeps its books in U.S. dollars, said it lost $9.4 million in its third quarter, amounting to nine cents per share.
Revenue totalled $171.5 million, up from $99.6 million.