Canadian tech firm Lightspeed ravaged by short seller attack

Fast-growing Canadian tech company Lightspeed is backing down after a short seller claims the company misled investors about its financial health, causing the company’s value to fall by $ 2 billion.

Spruce Point Management, a US short-selling investment firm with a habit of targeting Canadian companies, released a lengthy report on Lightspeed Inc. of Montreal on Wednesday, alleging the company covered up “inflation. massive ”in the number of customers it has, how much money it makes, and what growth potential it has.

Lightspeed is a payment processing company that helps small businesses sell things online and in person. It has been compared to Ottawa-based Shopify, which is currently the most valuable company in Canada.

Lightspeed “is baiting investors with its enormous potential in its payment solution, but we believe it has not been transparent about competitive pressures and sagging margins,” the report says, among other allegations.

“We believe Lightspeed is cramming into the Shopify space and will be forced to compete with it, along with new entrants such as Amazon. We believe Lightspeed will lose the battle.”

WATCH | Spruce Point sets out its arguments against Lightspeed:

The report prompted Lightspeed shares to fall more than 11% on Wednesday, closing at $ 126 a share on the Toronto Stock Exchange.

Prior to the short seller’s report, the company’s stock price was rocket during the pandemic. After hitting a low of around $ 12 per share at the start of the pandemic, Lightspeed’s value has risen steadily for more than a year to nearly 10 times what it was worth when it went public. is barely two years old.

Lightspeed has seen growing demand for its services as more retailers start selling things online during the pandemic, but the company has also grown due to an aggressive strategy of acquiring smaller rivals. , what Spruce Point says is also questionable.

Spruce Point claims the company is massively overvalued and is on the verge of falling to $ 22 a share.

Short sellers like Spruce Point make money when the stocks of the companies they sell short go down. They do this by borrowing existing stocks, selling them, and then buying them back later to replace what they borrowed at what they hope will be priced lower later.

WATCH | How short selling works:

Lightspeed is not the first Canadian company targeted by Spruce Point. Previously, the short seller targeted Dollarama, Canadian Tire and waste management company GFL, with varying degrees of success.

Lightspeed said nothing to address the report for most of Wednesday, but after markets closed, the company issued a short and terse statement denying the allegations.

“The report contains many inaccuracies and misinterpretations which Lightspeed believes are misleading and clearly intended to benefit Spruce Point, which itself has revealed that it would be profitable if Lightspeed’s stock price declines,” said declared the company.

Spruce Point has not reported how much of the company’s shares it is shorting, but data compiled by Bloomberg shows that around 2.5 million shares of the company are sold short overall. This represents about two percent of the business.

“Lightspeed has confidence in its governance, financial reporting and business practices. Lightspeed has seen consistent revenue growth since its initial listing on the Toronto Stock Exchange in March 2019. ”

Investors didn’t seem to know who to believe on Thursday as Lightspeed shares jumped 5% as the stock market opened, but around noon the stock was again in negative territory, changing hands at around $ 125 per share. . Wednesday’s sale caused the company’s value to drop $ 2 billion.

For its part, Spruce Point called Lightspeed’s defense “laughable.”

Lightspeed “provided a total dodge and deflection response and effectively told all of its investors to go away with that boilerplate no-response PR last night,” Spruce Point said in a tweet Thursday morning.