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Shopify Inc. shares tumbled as much as 14 percent after cracks began to appear in the company’s stellar growth rate.
The Canadian e-commerce company reported revenue that beat badysts’ estimates for the 10th-consecutive quarter, raised its full-year outlook and recorded an operating profit ahead of schedule. But the shares tumbled as badysts homed in on a slowdown in growth of gross merchandise volume, the total amount of goods and services sold through Shopify. Executives also dampened sales expectations for the first quarter of next year as the company becomes more cyclical.
Shopify, based in Ottawa, fell to as low as $94.51 in New York on Tuesday. It was the biggest drop since Oct. 4, when shortseller Citron Research cast doubts about the company’s prospects. The shares were trading at $100.26 at 3:06 p.m. in New York.
In the third quarter gross merchandise volume, the total amount of goods and services sold through Shopify, grew 69 percent from a year earlier to $6.4 billion, a slowdown from the previous quarter when that measure grew by 74 percent. Chief Financial Officer Russ Jones said the decrease came because Shopify is becoming a more seasonal business, and it will increase again over the busy holiday season. He also noted that international merchants are becoming a bigger part of the business, and most of them are just getting off the ground.
While Jones said the company expects a strong fourth quarter, he also cautioned that the pace may not be sustainable into early next year.
“While they have beaten on the top line every quarter since going public, all eyes are waiting for them to show how that revenue growth plays out,” Nikhil Thadani, an badyst at Mackie Research Capital Corporation, said.
Also overshadowing the results was a recent report by short seller Citron Research alleging that most of Shopify’s smaller customers were failing and that growth would eventually grind to a halt.
Chief Executive Officer Tobi Lutke shot back at the criticisms from Citron founder Andrew Left on a call with badysts Tuesday, calling him a “troll” and saying his claims were “preposterous.”
Lutke said “hundreds of thousands” of Shopify customers were thriving on the platform. “We are thriving along with them,” he said. Lutke pointed to the fact that more than half of total revenue comes from services revenue, which comes from merchants using Shopify’s payments and shipping tools, a sign that shows there is real and sustainable sales activity on the platform.
Still, the company didn’t provide new hard numbers that some investors were asking for, such as how many customers leave the platform each quarter. Left had also said Shopify’s marketing tactics promised people they could get rich off the platform, a claim Lutke said was untrue.
“We do not promise merchant success, far from it,” he said. “In fact, most of our content is about how hard entrepreneurship is, because it is hard.”
Citron later responded in a statement, saying that it was “unimpressed’ by Shopify’s response.
“Investors owning a stock selling at 15x sales deserve a clear and honest answer about all apsects of the business…especially what is driving growth,” Left said in a statement.
Citron said it has badembled a “comprehensive folder,” which it has forwarded to the Federal Trade Comission and is “certain” that Shopify will face an investigation for selling business opportunities.

Shopify, which provides tools for merchants to sell online through their own websites and multiple third-party marketplaces including Amazon.com Inc. and EBay Inc., has been the best performing stock on Canada’s benchmark equity index this year, gaining 155 percent this year through Monday.
The company had $171.5 million in sales in the quarter ending Sept. 30, topping the average badyst projection of $166.5 million. Shopify also reported adjusted earnings per share of 5 cents, beating estimates for a loss of 2 cents.
“These are good numbers in our view,” said Kevin Krishnaratne, an badyst at Paradigm Capital said. “We would be buying the stock on any weakness.”
Jones said that while every company eventually reaches a point where growth slows, he said Shopify is “a long way from that. If anything, the opportunity in front of us continues to grow. We still think we have lots of momentum there.”
Jones said the company plans to provide the merchant count at the end of the year.
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