Lightspeed Commerce (TSX:LSPD)(NYSE:LSPD) responded Wednesday evening after a short-seller report sent shares plummeting by 16% as of Thursday morning. The report accused Lightspeed stock of covering up massive declines amid a “flurry of acquisitions.” The report further questioned the quality of its revenue and stated that there is 60-80% downside in the company.
In response, Lightspeed Commerce came out with a statement addressing the allegations. In the statement, Lightspeed accused Spruce Point, the creator of the report, of “inaccuracies and mischaracterizations.” Furthermore, management believes this was “clearly intended to benefit Spruce Point.” However, the company did not clarify on why this would be the case.
Lightspeed Commerce further told investors to consult the Canadian securities regulatory authorities before making a decision on Lightspeed stock. It also reiterated its numbers for the prior quarter were correct at $115.9 million in revenue — a 220% increase from the year before. Lightspeed Commerce ended the statement by saying it will not comment further on the report.
The news took off over $3 billion from Lightspeed Commerce’s market capitalization quite literally overnight. The company started out Wednesday with a $21.34 billion market cap, and by Thursday morning it had shrunk to $17.96 billion, according to YCharts. Lightspeed Commerce quadrupled shares during the last year, when it reached all-time highs. The latest spending spree on acquisitions — over $2 billion since January 2020 — has many investors wondering whether they can still make big bucks — especially considering the massive growth from other e-commerce companies.
Yet there are some notes of truth to what Lightspeed Commerce had to say. Spruce Point does stand to profit from short selling. And it’s one of many reports the company has put forward recently. While it was successful with its Maxar Technologies report in 2018, others — such as Dollarama and Canadian Tire — did not work out. Furthermore, Spruce Point has yet to share how large its short position is in Lightspeed stock — something the Motley Fool, for example, would disclose readily, though there is no requirement to do this.
Investors should take both sides with a massive grain of salt. If Spruce Point could possibly benefit from this accusation, it may be a time to hold your Lightspeed stock rather than sell it. However, Spruce Point did indeed state it spoke with Lightspeed employees, and the accusations are staggering. The company stated Lightspeed Commerce straight-up lied about financial reporting, calling its GTV metric “smoke and mirrors,” and its average revenue per user is declining, not climbing.
Lightspeed Commerce may have stated that it won’t comment on the report further, but it may have to. Whether that’s during an earnings report or somewhere in the near future, one can only guess. But if shares continue to drop as they have, the company will likely have no choice. Meanwhile, I would sit on the sidelines of this stock for at least the near future.