Short seller Blue Orca Capital on Wednesday issued a report claiming Shift4 engaged in "highly questionable and hyper-aggressive accounting maneuvers" in 2022. FOUR stock plunged on the Blue Orca report.
Shift4 stock tumbled 8.7% to close at 62.59, clawing back from bigger losses on the stock market today.
Shift4, a digital payment processor, did not respond to a request for a response to the Blue Orca report. Blue Orca indicated in its report that it has a short stake in Shift4.
Allentown, Pa.-based Shift4 gets most of its revenue from customers in the hotel and restaurant industries as well as casinos. Chief Executive Jared Isaacman as of 2022 controlled more than 80% of Shift4's voting power and 35% of the company stock.
FOUR Stock: Blue Orca Report
"We see Shift4 as, in reality, a roll-up of low-tech POS (point-of-service) systems and payment processors which is substantially less profitable, generates far less cash, and is materially more levered than investors are led to believe," said the Blue Orca report.
The report added: "As Shift4's stock tumbled through 2022, we believe that its CEO faced the threat of a margin call from an unusually large series of stock pledges, creating an existential threat that he would be forced to liquidate up to 10 million shares (12% of diluted shares outstanding)."
Blue Orca went on to say: "With the specter of a margin call hanging over the stock, we think that Shift4 engaged in a string of highly questionable and hyper aggressive accounting maneuvers seemingly designed to keep the stock afloat, from cash flow manipulation to inexplicable distributor acquisitions that enabled it to capitalize a major component of COGS (cost of goods sold)."
Shift4 Expands In Europe
At MoffettNathanson, analyst Eugene Simuni said in a note to clients: "Blue Orca's report highlights certain well-known questions about the quality of Shift4's financials and the maturity of the company's governance structure, but materially overstates the significance of these issues and fully ignores the strengths of Shift4's underlying business franchise."
FOUR stock ranks No. 33 in the IBD 50 roster of growth stocks.
Shift4 competes with Toast, Block's Square business and Fiserv's Clover.
Aside from the hotel and restaurant industries, Shift4 has expanded into sports stadiums, airlines and charities, as well as food and beverage companies.
In addition, Shift4 has been expanding into Europe through acquisitions. In September, Shift4 acquired Swiss company Online Payments Group for $125.9 million.
Shift4 in early 2022 announced the acquisition of Finaro for $575 million. Finaro is a Pan-European e-commerce platform with banking licenses in Europe, Japan and Hong Kong.
As of Tuesday's close, FOUR stock is up 22.5% so far this year.
Follow Reinhardt Krause on Twitter @reinhardtk_tech for updates on 5G wireless, artificial intelligence, cybersecurity and cloud computing.
