Shopify has dominated the eCommerce platform market for years – at least, until now. Shopify stocks dropped over 10 percent on Wednesday after short seller Andrew Left released a critical video making claims that the Shopify business model isn’t legitimate. Left of Citron Research says the Ottawa-based company’s stock is inflated. It’s worth half of what it is on the market, he says.

Founded in 2004, Shopify is an eCommerce computer software platform that helps small to medium-size businesses launch online stores and retail point-of-sale systems. The cloud-based system includes payment, inventory and web design, all the tools someone needs to start their own online business. The company states it has over 500,000 merchants actively using the platform, and gross merchandise volume exceeds $40B.

Shopify stocks drop, Citron Research pokes holes in Shopify’s claims

Shopify went public on the TSX in 2015, and the stock more than doubled this year. It became Canada’s largest tech giant. But Left claims most of the company’s 500,000 businesses aren’t even real. Rather, the businesses are making money by reselling items, which is a direct violation of the Federal Trade Commission rules.

“They are not selling them to business owners,” Left announced. “They are selling them to people as opportunities to get rich quick.”

“What we see Shopify doing is selling business opportunities,” he states. Some of the merchants do have physical stores, however, dropshipping allows merchants to simply resell products to make money, says Left.

Shopify claims to have 500,000 merchants, but Left says the company is paying bloggers and influencers to write content in Shopify’s favour. In today’s digital world, influencers are required to disclose partnerships, and Left says Shopify is in violation of that.

Where Shopify stocks are now

As a short seller, Left makes money by betting against how stocks are performing. Left determines which stocks he thinks are overvalued. According to Bloomberg, just over four million shares are held by short sellers, which makes up three percent of the total share.

That ratio doubled in August, according to CBC News.

Left says the company is worth roughly $55US per share (half the value of the current market cap). That’s without any intervention from the FTC. He compares Shopify’s situation to Herbalife, an organization that settled with the FTC in 2015 for $200M because of its sales practices.

Shopify declined to comment on news reports from multiple sources since Shopify Stocks dropped.

Shopify vs. Cartifly

There is no word yet on what will happen as a result of the fallout, or if the FTC will investigate. Merchants looking for a new eCommerce platform do have other options than Shopify. The newest eCommerce platform to hit the market is Cartifly, an end-to-end solution for both existing and brand new eCommerce businesses. Learn more about starting an online business with the Cartifly team, and launch your business the legitimate way.

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