Shift4 Payments (NYSE: FOUR) fell significantly on Wednesday after Blue Orca Capital released a short report on the stock, claiming its appearance as a fast-growing, profitable fintech company is a “facade.”
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“We see Shift4 as, in reality, a roll-up of low-tech POS systems and payment processors which is substantially less profitable, generates far less cash, and is materially more levered than investors are led to believe,” the short-selling firm alleges.
FOUR shares fell more than 8% following the report, although it is still up more than 9&% in 2023 and over 38% in the last six months.
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Blue Orca stated that as FOIUR's stock fell (mainly in the first half) of 2022, 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.”
The firm claims that with a potential margin call hanging over the stock, they believe Shift4 “engaged in a string of highly questionable and hyperaggressive accounting maneuvers” designed to keep the stock afloat.
Blue Orca added that Shift4 more than doubled its Q4 2022 operating cash flow via accounting “gimmickry” and that a “concerning string of governance issues arose just as this was playing out,” with Shift4's CFO abruptly leaving the company the day before its Q2 2022 earnings call.
“We estimate that, in total, Shift4's aggressive accounting games and M&A activity inflated 2022 gross profit by 13%, Adj. EBITDA by 34%, and operating income by close to 3x, while its buyout of 50% of its independent distributors and Q4 2022 cash account withdrawal together inflated operating cash flow by 61%,” Blue Orca concluded.
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