Tobi Lutke, CEO of SHOP, also was surprised by the market’s reaction to the company’s earnings release and conference call as he tweeted the following:
Graham‘s Mr. Market must have been off his meds today 
https://twitter.com/tobi/status/925476589554434048?refsrc=em…
Hopefully, we will see a more rational reaction to the earnings over the next few days…
Also, from the conference call, here is what Tobi said about the Citron report:
For those who don’t know during this quarter we were targeted by short selling troll who made all made sort of preposterous claims. Before we get into I want to address some criticism that the company didn’t response strongly and quickly enough. We take this as constructive feedback but our rationales are following. All of us at Shopify laser focused on building valuable and enduring company. We are busy growing our merchant base, launching new features and getting everybody ready for Black Friday and Solo Monday which is coming up soon. And I honestly believe that the best companies do not engage in short-term stock price sort of management if you will and neither do we.
Some days the stock is high and some days it’s lower but over the course of a year it will approximate to how the company is doing. So given that as I twitted we’ll deal with this during the financial call because this is the time we reserve every quarter for these kinds of activities. So I want to correct three key points of misinformation. And just to be absolutely clear, we consulted outside legal counsel and that also categorically dismissed this claims as unsubstantiated. I can definitely state that one, we do not sell business opportunities, and we sell a commerce platform. Two, we comply with FTC rules and consistently inform our affiliate of illegal obligation. And three, we do not promise merchant success, far from it.
In fact, most of our content is about how hard entrepreneurship is because it is hard. And we are here to have those who are willing to try it. Every 90 seconds an entrepreneur makes their first sale on our platform. We celebrate and cherish his accomplishment because it’s not easy. This is what we are most proud of. So implying that these businesses are somehow illegitimate as an insult to their hard work. And here is the really important piece that some of us got missed. Why we see ourselves as a catalyst ambition and we strive to low our learning curve for entrepreneurship so everyone can participate. Most of our revenue actually comes from a merchant successfully selling on Shopify. The more merchant sales the more payment we facilitate, the more shipping we assist, the more local capital we provide. This is how we have been updated to deliver results that we do quarter after quarter because our merchants are succeeding. So even though some entrepreneurs have failed and stop paying $29 per month this floor, hundreds of thousands is thriving and we thrive alongside with them.
Okay. I hope this case up things in the matter. Let’s move on.
And then in the Q&A, there was a follow-up question:
Nikhil Thadani
Great, thanks guys. I just wanted to clarify if you have any sort of conversations or discussions with the FTC in the past call it three weeks or so since a short report. And if so sort if you could maybe just give us a quick update on that. Thanks.
Tobi Lütke
We did not. We have not been not contacted there by FTC and have no contact with them on this matter. And if it would be anything material it would have been part of our disclosure so nothing to report.
See more in the conference call transcript here: https://seekingalpha.com/article/4118742-shopifys-shop-ceo-t…
I was a bit surprised by the market reaction and MarketFoolery’s reaction too. Although Tobi’s response was not artful, it was not unhinged either. One point that would calm some angst is Tobi should be clearer about the failure rate of new businesses. It’s not a secret that many new businesses fail. Being transparent about failure versus new signings would be good. It would also be good to know if Shopify reduces the failure rate compared to national averages.
I am satisfied with the progress and have always expected ups and downs based on the high valuation.
Good luck to longs.
Best,
bulwnkl
I think someone said that Tobi’s response to the Citron report was too clinical and that this may be why the market reacted the way it did after the SHOP earnings call. Well, Tobi is German and German’s are often very logical so you can say that Tobi’s response is how a typical German might respond. In listening to Tobi over the past couple of years, I have made a few observations about him:
Chris
I think someone said that Tobi’s response to the Citron report was too clinical and that this may be why the market reacted the way it did after the SHOP earnings call
Is this a joke? He once again resorted to name-calling and then said sophisticated institutional investors were ‘off their meds.’
Yeah, that’s clinical all right. If you’re in a straight jacket.
Hello Chris -
I found your comments regarding Tobi Lütke interesting. You cited several factors that you found to be important:
1) he is very focussed on the long term success of SHOP
2) he is very focussed on constantly improving merchants’ ability to sell and do business
3) he is very focussed on reducing the barriers of SMBs to starting business and reducing the advantages that large enterprises have over SMBs
4) his actions and his words have consistently demonstrated that he has the highest level of integrity
To be sure, those are nice qualities to possess. But I want lots more in a CEO:
Proven competence. Tobi Lütke is a relatively inexperienced entrepreneur. Bless him for his entrepreneurial spirit, but history has demonstrated that ofttimes the originating entrepreneur may not be the best manager. SHOP now sports almost $10 Billion in market cap. This is a serious enterprise requiring serious management.
Focusing on providing quality service is fundamental. So is a focus on profitability. As yet, there’s not much evidence that SHOP has developed a well-defined road map to profitability.
I want CEOs to be dedicated to increasing shareholder value. As of now, evidence indicates that SHOP’s management is dedicated to increasing personal wealth with shareholders a secondary consideration. Share dilution, by its very definition, reduces shareholder value. Diluting shareholder value through wildly generous stock-based compensation is a warning sign that Lütke needs to sharpen his focus.
Is this a joke? He once again resorted to name-calling and then said sophisticated institutional investors were ‘off their meds.’
Yeah, that’s clinical all right. If you’re in a straight jacket.
Not a joke. I was referring to what Tobi said at the beginning of the earnings call, not what he tweeted.
Chris
2) Focusing on providing quality service is fundamental. So is a focus on profitability. As yet, there’s not much evidence that SHOP has developed a well-defined road map to profitability.
But there’s no evidence that the market is demanding any profitability.
In fact, the opposite is true - for proof, I offer up the 5.5m share offering they did just a few short months ago for $91, an astute move which made actually achieving a profit, a real profit where you include the expense of shareholder compensation and resulting dilution, pretty much irrelevant given their sales growth rates.
The thing about that offering is that went straight to the company itself and essentially bought them a VERY LONG time to do anything they wanted. While I agree that eventually - eventually - it would be nice if they also focused on real profits, that day is no time soon, and it won’t occur until we get a recession when things like this will matter again (for a while).
just 2c
But there’s no evidence that the market is demanding any profitability. - GreenMartianX
I have to agree with you on that. We’ve entered the last phase of a long-running bull market wherein conventional business principles give way to new terms, new ways of thinking, new enthusiasms and a disregard for risk. And I agree that recessions typically cure such fevers.
I, personally, opt to invest in profitable companies. Investing is always a risky business but solid profitability and healthy balance sheets offer a bit of security.
That’s what makes a market.