MONTREAL— Lightspeed will report results from its most recent quarter on Thursday, perhaps the most closely watched since the company first went public in 2019.

At issue is whether the Montreal-based fintech can remain in the good graces of investors, who have propelled the stock from under $20 at its IPO in March 2019 to a record high of $158.93 in late September—days before the company was targeted by New York-based activist short seller Spruce Point Capital Management, prompting its shares to crash as much as 35 per cent.

So far, analysts remain optimistic, with 11 buy ratings issued for Lightspeed’s stock, compared with just two sell ratings, according to data provider FactSet. Analysts expect a loss of $0.09 per share in Lightspeed’s fiscal second quarter, with a consensus price target of about $120, in line with where the stock is currently trading.

But the 125-page short-seller report also highlights a key moment in the company’s lifecycle. Lightspeed will be forced to defend itself in light of Spruce Point’s allegations that the company overstated key business metrics and covered up threats to its rapidly growing payments business. That alone marks a shift from its early days, when the point-of-sale and e-commerce company received widespread praise as a Canadian tech success story.

“Because you’re newer, and especially for fast-growing tech companies, when you go public, you might not have a whole bank of trust built up of analysts and other powerful voices in the market,” said Wojtek Dabrowski, founder of Provident Communications, a firm that specializes in crisis communications and reputation management for large companies. “You’re dealing with this very amorphous, asymmetric threat that arrives on your doorstep.”

Since Sept. 29, when the short-seller report was released, investors have been mulling Spruce Point’s claims, prompting Lightspeed’s shares to fall as low as about $106 in early October, before recovering somewhat throughout the month. 

Spruce Point has also targeted other Canadian companies like Maxar and Intertain, which led to leadership shakeups and massive drops in their share prices. “A common theme we believe is that Canadian analysts don’t ask difficult questions of management, challenge assumptions, and are overly optimistic,” Spruce Point wrote in its report on Lightspeed.

But the firm has had more limited success elsewhere. In the last few years, Spruce Point has also gone after Canadian Tire and Dollarama, whose share prices recovered after initially falling in the wake of the short seller’s disclosures. Spruce Point could still have profited significantly from the temporary decline in those stocks. 

In an interview with The Logic, Spruce Point founder Ben Axler declined to disclose the size of the company’s short position in Lightspeed. 

Lightspeed analysts appear to agree with some of the report’s main conclusions: namely, that profit margins for its payments business have fallen, that its average revenue per user is declining and that it hasn’t provided enough disclosure of key metrics like customer acquisition cost and churn. However, analysts differed on how much to make of them.

“From what we can tell, nothing we’ve seen thus far requires a change in our investment thesis,” wrote National Bank analyst Richard Tse in a Sept. 29 research note following the short-seller report’s release, in which he maintained his outperform rating for Lightspeed. “In our view, while a number of points in the report may be factually correct—we hold a different context to those facts.”

Howard Leung at Veritas Investment Research Corporation said in a Sept. 29 research note that the report “highlights a flurry of inconsistencies and discrepancies in Lightspeed’s story.” The analyst maintained his sell rating for the stock, citing poor disclosures by company leadership and intense industry competition, though he said Lightspeed could still perform well in the short term in light of reopening trends.

The company itself issued a brief statement on Spruce Point’s report the night of its release, highlighting its growth since going public and cautioning investors not to make decisions based on the report. Lightspeed also addressed the report internally that day, sending an email to staff with similar points as its public statement, said one employee, who spoke on condition of anonymity.

“The report contains numerous important inaccuracies and mischaracterizations which Lightspeed believes are misleading and clearly intended to benefit Spruce Point, which itself has disclosed that it stands to profit in the event that the stock price of Lightspeed declines,” the company said. “Lightspeed is confident in its governance, financial reporting and business practices.”

The Caisse de dépôt et placement du Québec, which as of June owned a roughly 16 per cent stake in Lightspeed, declined to comment on the report.

Meanwhile, as Lightspeed looks to counter Spruce Point’s narrative, the company is searching for a senior communications executive. Last week, Lightspeed posted a job opening for a vice-president of communications, whose duties would include providing oversight to the company’s investor-relations team and developing both an internal and external narrative.

“Clearly, they’re looking to get better in this area, given what has happened,” Provident’s Dabrowski said.