Facebook Could Spell Pain For Shopify, Predicts Famed Short Seller

Shopify, the maker of technology for merchants to sell online, saw its stock face pressure in trading Monday (March 26) after Andrew Left, the famed short seller and head of Citron Research, issued a new negative report on the company.

According to CNBC, Left contends in his report that the partnership between Shopify and Facebook is an “unholy one” designed to exchange the information on consumers that Facebook collects and Shopify sells to what Left wrote were “entrepreneurs.” He was referring to all the online merchants that use its technology.  Left is known for making negative bets against Valeant Pharmaceuticals that turned out to be correct. “Rocked to the core of its business model, Facebook has no choice but to take away Shopify’s punch bowl,” Left wrote in a note covered by CNBC. “As the scope of Facebook’s severe privacy problem gets exposed, Facebook has no choice but to drastically revamp how it sells data — data about you and your personal behaviors.” He went on to say that Shopify’s eCommerce platform actually promotes “get rich quick schemes.” A spokesperson for the company told CNBC that Shopify offers technology for businesses so they can sell on their own websites, in retail stores and on marketplaces on the Internet. “The power of our platform is that we offer one interface for merchants to sell anywhere and everywhere. It’s incorrect to say that our merchants’ success is tied to Facebook and its data,” the spokesperson said.

The call from Left comes as Facebook is embroiled in a data privacy scandal over revelations that Cambridge Analytica, the political consulting company that worked on President Donald Trump’s presidential campaign, accessed the data on 50 million Facebook users without their consent. That has sent shares of Facebook plummeting and prompted a series of investigations both in the U.S. and the U.K. The latest is from the Federal Trade Commission, which on Monday (March 26) said it would investigate the incident and Facebook’s practices.

CNBC noted that while Left’s negative report was able to sink shares of Shopify on the first trading day this week, the stock is up about 100 percent during the past twelve months. Left says that has more to do with the number of customers than with having good profit growth. “Shopify’s stock price is perched on the halo of increased merchant count, which all of the growth and the bulk of the numbers is from the ‘entrepreneur count,’” Left wrote, according to CNBC. “More importantly, the gross merchandise volume per merchant [ratio] is collapsing as the entrepreneurs are struggling to actually ‘get rich.’”

In response to this news, a representative of Shopify said, “We remain extremely confident in our business, our merchants, and our growth model. Shopify offers the technology for businesses to sell on their own websites, in retail stores, on marketplaces like eBay and Amazon, and on social channels like Facebook and Pinterest. The power of our platform is that we offer one interface for merchants to sell anywhere and everywhere. It’s incorrect to say that our merchants’ success is tied to Facebook and its data. It’s similarly incorrect to say that our company’s success is based on our Facebook advertising.”