Lightspeed Commerce (LSPD.TO) fell 11.7 per cent today after U.S. short-seller and investment manager Spruce Point Capital Management released a scathing report saying the stock could fall between 60 per cent and 80 per cent over the long term.
Technology stocks have been under pressure in recent days, and the report only made things worse for one of Canada’s tech darlings and top performers on the TSX.
Montreal-based Lightspeed offers point-of-sale payment solutions. Despite being in business for 16 years, Spruce Point says Lightspeed has never been profitable and that Spruce Point has a short position.
Spruce Point claims Lightspeed isn’t transparent about competitive pressures or gives investors too little information to understand organic growth. It also accuses Lightspeed of inflating customer numbers.
“We question why Lightspeed reported 50,000+ customers up through November 2018, and then ceased customer count disclosures to investors when coming public in March 2019?,” said Spruce Point in the report.
“In our view, the company might have shifted the narrative from customers to locations in an attempt to conceal a materially inflated customer count or an undisclosed material adverse event involving customer loss.”
Acquiring other companies has been part of Lightspeed’s growth. Spruce Point says the acquisition spree has come at a big cost and Lightspeed’s revenue reporting doesn’t tell the full story.
“They are very good at PR, and saying we’re going to acquire this, this, this, but I don’t know if there will be a breaking point where all these acquisitions are not going to play well together. It looks great on paper but when you go into practice, how is this going to operate beyond just numbers on a PR deck?” said Spruce Point.
Spruce Point says Lightspeed has weak corporate governance, worrisome auditor oversight and is also expensive on a valuation basis.
Not uncommon for high flying-stocks to be targets
When a stock has a big run, it’s not uncommon for it to be a target for short-sellers.
This isn’t the first time a Canadian tech company has come under attack from a U.S. short seller. Shopify (SHOP) and Constellation Software (CSU) were targeted and went on to be top performers on the TSX after a brief dip.
5i research holds Lightspeed in its model growth portfolio.
“For a stock up over 100 per cent in the last six months alone and trading at a high valuation, stocks like this can attract some attention from short-sellers,” 5i research CEO Ryan Modesto told Yahoo Finance Canada.
“Different opinions and views are what make a market but at first glance, we are not sure we see any 'smoking gun' in this report. Competition in the space is increasing but it is a large market and LSPD is moving quickly to claim their share of the market.”
Lightspeed says Spruce Point's report contained inaccuracies and mischaracterizations intended to benefit the short-seller.
Jessy Bains is a senior reporter at Yahoo Finance Canada. Follow him on Twitter @jessysbains.