Shopify (SHOP: 103, down $13) Falls Sharply After Andrew Left Calls the Company a “Get-Rich-Quick Scheme”
Short-seller Citron Research issued a stinging lecture of the Canadian e-commerce company, calling it a "get-rich-quick scheme." In tweets and in an interview on Bloomberg TV, CEO Andrew Left said Shopify is "dirtier" than Herbalife, which has been targeted by regulators for deceptive business practices.
Shopify had no comment.
Shopify, which provides websites, payments and shipping for online merchants, has been one of the top technology stocks globally in recent years, gaining 8-fold from its IPO in 2015.
Left has trashed Valeant Pharmaceuticals, and urged the U.S. Federal Trade Commission to look at Shopify’s claims that members can quit their jobs and become millionaires, similar to what Herbalife has said and was censured for. On Shopify’s Facebook page it says that “2,700 people become millionaires each day,” and the company brands itself as “the online store for someday millionaires.” The FTC prohibited the Herbalife from claiming that “members can “quit their job” and enjoy a lavish lifestyle,” and fined them $200 million. Left also accused Shopify of paying bloggers and influencers to promote the company without disclosing those relationships.
Some things that Left said:
“This is not an $11-billion company.”
“This needs to get completely looked at by the FTC and completely looked at by Wall Street.”
“Shopify should be down 45% immediately."
He set a $60 price target on the stock.
Robert W. Baird & Co. defended the shares, saying that Citron is "largely off-base" and that they would use the weakness as a buying opportunity. The company views the selloff of Shopify as a buying opportunity. Baird said that Shopify is not a multi-level marketing company; it is a technology company that sells a SaaS e-Commerce platform focused on small and medium sized businesses. The vast majority of the marketing campaigns are focused on easy online store set-up, building a brand, selling on Facebook, or creating an online shop. They have an Outperform rating on the stock.
To review, in the second quarter revenue was up 76%. The company is still operating at a loss right now, but it closed the gap toward profitability by reporting an adjusted operating loss of just 2% of revenue in the second quarter, compared to 4% of revenue in 2016's second quarter.
The company also said in August that it now has 500,000 customers across 175 countries. That puts annual growth at an extremely strong 74% pace since 2012.
Shopify is expecting revenue of $165 million in the third quarter, which would represent a 66% year-over-year increase at the midpoint.
BMR Take: Remember, revenue always wins out in the end.
We are with Baird on this one. We feel this is a buying opportunity. The stock could go lower in the next few days but in the long run, we believe this stock will go much higher. And you know what a short seller has to do some day? He has to buy back his shares, which of course is bullish.
We added the stock in March at $72, so we are up 42%. If you don’t like controversy, you might want to take profits here. But we believe a year from now the stock will be a lot higher.
