MONTREAL — Things seemed to be on the right track for Nuvei. After going public in 2020 in what was then Canada’s largest-ever tech IPO, the Montreal-based payments company expanded quickly into new sectors like cryptocurrencies and online gambling, posting quarterly results that pleased the market. In September, its stock hit an all-time high, propelled by a chorus of buy ratings from analysts.

Now it faces a vastly more uncertain outlook. Nearly all of this year’s gains were erased last week when New York-based short seller Spruce Point Capital Management published a 119-page report on the company, claiming it had covered up an alleged pattern of fraud and shady business practices by its CEO, Philip Fayer, and other people tied to Nuvei.

In a statement, Nuvei called the Dec. 8 report misleading and inaccurate. “The personal attacks on Nuvei executives made by the short seller appear to have been made to distract from the company’s achievements and progress,” the statement reads. A company spokesperson didn’t respond to The Logic’s request for an interview with Fayer after the report’s release.

But the damage has already been done. Nuvei’s stock finished the week down by roughly a third, and is trading at less than half of the high it reached earlier this year.

Short sellers make money by betting against companies and profit when their share prices fall. In September, Spruce Point targeted Lightspeed, another Montreal-based payments company. Shopify, notably, was also targeted by a short seller soon after going public, but has since hit new highs.

Whether the accusations against Nuvei will prove a minor hurdle or a major obstacle to its growth remains to be seen. In the short term, though, the attention from Spruce Point will be a nuisance for the company, which is entering new regions and business verticals as it invests its capital raised from two financings on the Toronto Stock Exchange and the Nasdaq.

Nuvei today is a far different company than when it first launched as a fintech focused mainly on electronic payment processing for point-of-sale terminals. The company was founded in 2003 as Pivotal Payments by Fayer, then a student at Montreal’s Concordia University who was taking time off from school. It grew rapidly through acquisitions, helped along by a $60-million investment from Goldman Sachs in 2006. Nuvei now has around 1,350 employees worldwide, according to Fayer, including roughly 200 based in Canada.

Since its Canadian IPO in September 2020, Nuvei has spent hundreds of millions of dollars branching out into online gaming and crypto, two rapidly growing sectors, as well as into new global markets. Earlier this year, it acquired Mazooma, an Atlanta-based payments processor for online sports-betting sites, seeking a greater foothold in the U.S. market, which is growing rapidly as more states legalize the practice. It also bought Simplex, a payment processor for crypto companies, and Paymentez, another provider focused on Latin America.

In a bid to increase its brand awareness in some of those key new markets, Nuvei plans to significantly increase its marketing budget to match those of its competitors, chief marketing officer Guillaume Conteville, who joined Nuvei this fall, told The Logic in an email. The company is currently recruiting global heads of communications and heads of marketing for both Latin America and the Asia Pacific region, among other roles.

“Ultimately, we have focused more on product,” Fayer said in a November interview with The Logic, prior to the release of Spruce Point’s report. “Now, to accelerate and continue feeding the distribution channel, we’re looking to build out marketing.”

In its most recent quarterly report on Nov. 9, the company highlighted wins in its online-gaming vertical and the launch of its new payment-card issuance business in Europe as bright spots for the company. In the last quarter, it signed a number of major customers including BetMGM, MGM Resorts International’s online sportsbook, and SI Sportsbook, Sports Illustrated magazine’s venture into online gaming.

On Friday, Nuvei also announced its intention to start working with merchants in the United Arab Emirates and Northern Africa, a region the company described as having a rapidly growing market for e-commerce and cross-border payments.

In the days following the release of Spruce Point’s report last week, analysts appeared to be split on what it meant for Nuvei in the long run. National Bank’s Richard Tse said it didn’t change its investment thesis on the company, maintaining his outperform rating and US$160 price target. CIBC’s Todd Coupland, on the other hand, cut his price target to US$76 from US$160, saying investor questions and ESG issues would persist.

“While we do not view the report’s assertions to have been substantive, we do believe Nuvei would benefit from providing more transparency around the sectors and customers that drive its organic growth,” Coupland wrote in a Dec. 8 research note.

Spruce Point’s claims of insufficient disclosure by Nuvei are similar to its accusations against Lightspeed. That company’s stock dropped in late September after Spruce Point accused it of hiding weak organic growth and misleading investors about its key financial metrics, then fell again in November after it offered weak guidance in its quarterly earnings in early November, citing supply-chain issues. Lightspeed has said the short report contains inaccuracies and mischaracterizations. 

Underlying Spruce Point’s interest in Canadian tech stocks is a belief that Canadian analysts are too quick to cheerlead homegrown companies. “Every time I look at a Canadian company and read the reports from Canada, it’s always, ‘This Canadian company is the best in the world at what it does,’” Spruce Point founder Ben Axler said in an interview with The Logic last month.

While Nuvei’s CEO doesn’t attract as much public attention as other Canadian tech billionaires, Fayer is one of the country’s wealthiest people, with a net worth of nearly US$2 billion, according to a Forbes estimate. Since the release of Spruce Point’s report, Forbes’s measure of his personal net worth has fallen more than US$1 billion.

Speaking with The Logic just weeks before Spruce Point targeted his own company, Fayer declined to comment on the specifics of the Lightspeed report, but highlighted the importance of disclosure. 

“Everybody loves more disclosure,” Fayer said. “From our standpoint, we’ve remained really consistent on our disclosure. We obviously want to learn from this, as every company should.”