Market cap

More than $ 2 billion in market cap zapped as short seller targets Lightspeed

Lightspeed Commerce Inc. shares were the biggest losers on the TSX on Wednesday after a short seller expressed doubts about the number of clients, revenue growth and the company’s competitive position.

The company’s shares fell 11.7%, to $ 126, wiping out more than $ 2 billion in market cap.

The Montreal-based company sells point-of-sale systems for retailers and restaurants, but has gone into e-commerce with a series of expensive acquisitions. At its 52-week high last week, the company’s stock had quadrupled from its 52-week low.

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This is the latest Canadian target for Spruce Point Capital Management of New York. Spruce Point is profitable if investors accept its thesis that Lightspeed faces a potentially large drop in the share price. Selling stocks short is a bet on falling stocks, with an investor borrowing stocks, selling them and paying off the loan by returning new stocks, hopefully bought at a lower price.

Several of his short sales have worked, including a dramatic collapse at Maxar Technologies Inc. in 2018. However, several of his recent short sales – Dollarama Inc., Canadian Tire Ltd. and GFL Industries Inc. – were missed, as they ‘We’ve all outperformed the S & P / TSX Composite Index since the Spruce Point reports were released.

Spruce Point CEO Ben Axler declined to comment on how important the company’s short position is, citing company policy and the lack of regulations requiring it.

In a statement Wednesday evening, Lightspeed said the report “contains many significant inaccuracies and misinterpretations, which Lightspeed says are misleading and clearly intended to benefit Spruce Point.” He urged investors to “consult credible sources”, including the company’s own securities documents, before making investment decisions.

In its 125-page report, Spruce Point collected numerous statements from Lightspeed, dating back to its days as a private company, and highlighted what it saw as inconsistencies and gaps in disclosures regarding the number of customers. that Lightspeed has had, what is its potential market. , and how much revenue he gets from each customer.

Spruce Point believes Lightspeed’s point-of-sale system core product isn’t growing as quickly as the company suggests, and recent and expensive acquisitions have masked it. He also wonders how Lightspeed posted stable revenue numbers during COVID-19 when similar companies reported double-digit sales declines.

As it grows into e-commerce and payment products, Lightspeed will bump headlong into Shopify Inc. and even Amazon Inc. – and lose, according to Spruce Point.

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Spruce Point says investors who have recently bought stocks at valuations as high as 25 times estimated sales in 2022, and 50 times estimated gross profit margins in 2022, “do not see titanic competitive changes happening in their business. company and its industry. . once investors have become aware of the reality and reassessed the quality of its activity, [Lightspeed’s] the share price could drop from 60% to 80%.

In its response on Wednesday evening, Lightspeed said it was “confident in its governance, financial reporting and business practices” and “has seen steady revenue growth” since its IPO in March 2019. It has reiterated its published sales figures: In the last quarter, Lightspeed said, revenue grew 220% year over year, with organic revenue – without the help of acquisitions – up 78%.

In a note Wednesday, National Bank of Canada analyst Richard Tse, who has an “outperform” rating on the stock, said “Without a doubt, we need to take these reports seriously; and given its length (125 pages), we are still reviewing it. That said … nothing we’ve seen so far requires a change in our investment thesis.

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