Shopify complies with FTC regulations, CEO says after short-seller's allegations

The Canadian Press</span>
Published Tuesday, October 31, 2017 9:46AM EDT
Last Updated Tuesday, October 31, 2017 10:21AM EDT

OTTAWA -- The CEO of Shopify Inc. (TSX:SHOP) defended his company's business model against "preposterous claims" by a "short-selling troll" during the company's third-quarter earnings call with analysts.

"This is going to be a fun one," said Tobias Lutke Tuesday morning before launching into promised remarks addressing allegations made earlier this month by high-profile short-seller Andrew Left of Citron Research.

Left published a video attacking the company, which provides businesses with online checkout services, and its business model. He alleged the company doesn't comply with Federal Trade Commission guidelines and suggested the stock's value is closer to US$60 before any potential FTC involvement.

He compared the company's practices, which he called a "good ol' get-rich-quick scheme," to Herbalife. Left alleged Shopify's partners recruit merchants by wooing them with promises of self-employment and million-dollar incomes.

The CEO asserted the company sells an ecommerce platform -- not business opportunities.

Shopify complies with FTC regulations, Lutke said, 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.

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.

The company, which keeps its books in U.S. dollars, said it lost US$9.4 million in its third quarter as its 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$5.0 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.

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