Canadian tech star Shopify didn’t withhold any punches in defending itself from accusations levelled earlier this month by influential U.S. short-seller Citron Research.
Citron’s questioning of Shopify’s business model amounts to “preposterous claims” by a “short-selling troll,” Shopify CEO Tobias Lutke said during the company’s third-quarter earnings release.
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The Ottawa-based company sells e-commerce services to medium- and small-sized businesses.
“This is going to be a fun one,” Lutke said Tuesday morning before addressing allegations made by Citron founder Andrew Left.
But the short-seller was quick to fire back.
“Citron understands Shopify’s platform is effective for small and medium-sized businesses to launch e-commerce platforms. We never doubted they have good software for accomplishing this task,” the firm said on its website in response to Lutke’s comments.
“That being said, we were unimpressed by the company’s response to Citron’s conclusion,” the statement continues. It adds that “immaturity and hubris of management” prevent Shopify from addressing the issues highlighted by Citron.
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In early October, Left published a video accusing Shopify of unduly relying on paid bloggers and online influencers to get entrepreneurs to sign up for its e-commerce platform. He also suggested Shopify is illegally promising business opportunities and million-dollar incomes to merchants who sign up for its services.
He called these practices a “good ol’ get-rich-quick scheme.”
Shopify’s Lutke said in the earnings release call that his company sells an e-commerce platform – not business opportunities. He added that Shopify complies with FTC regulations, and much of their content shows how hard – rather than easy – entrepreneurship is.
“Implying that these businesses are somehow illegitimate is an insult to their hard work,” he said.
The company makes most of its revenue from merchants successfully selling through their online shops, he added.
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Shopify consulted with outside legal counsel, who also believe the claims are unsubstantiated, Lutke said. Shares in Shopify came under pressure after Left published his criticism. They fell more than 10 per cent on the Toronto Stock Exchange the day of the report, but have since regained much of the ground they lost. Shopify shares closed up $2.63 at $140.22 on the TSX on Monday. They shed $8.95 or 6.38 per cent by mid-morning after the company released its most recently quarterly earnings.
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The company, which keeps its books in U.S. dollars, posted a net loss of US$9.4 million in its third quarter, even as revenue grew 72 per cent compared with the same period last year. Its loss for the quarter amounted to nine cents per share compared with a loss of US$9.1 million or 11 cents per share a year ago when it had fewer shares outstanding.
On an adjusted basis, Shopify said it earned US$5 million or five cents per share for the quarter compared with an adjusted loss of $1.8 million or two cents per share for the third quarter of 2016. Revenue totalled US$171.5 million, up from US$99.6 million. The increase came as its subscription solutions revenue grew to US$82.4 million compared with US$49.8 million a year ago, while merchant solutions revenue climbed to US$89 million, up from US$49.7 million.
– With files from the Canadian Press
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