Why Shopify, Inc. Stock Fell Tuesday

MarketsMotley Fool

What happened

Shares of e-commerce platform company Shopify (NYSE: SHOP) fell as much as 13.6% Tuesday, following the company's third-quarter earnings release. The stock is down about 8.4% at the time of this writing.

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While the stock's decline comes after Shopify released its third-quarter results, Shopify's quarterly performance is not likely the main reason for that drop. Instead, bearish sentiment toward the stock is likely driven by Citron Research's comments published on Tuesday.

"[W]e were unimpressed by the company's response to Citron's conclusion that Shopify sells business opportunities through affiliate marketers, and they depend on affiliate marketing to drive their growth metrics," Citron said on Tuesday in a blog post after Shopify CEO Tobi Lutke played down Citron's assertions about Shopify's marketing tactics.

So what

Shopify's third-quarter results were solid. Revenue was $171.5 million, and adjusted earnings per share (EPS) was $0.05. Both key metrics were higher than what analysts were expecting. Revenue was up 72% year over year, and adjusted EPS increased from $0.02 in the year-ago quarter.

Regarding Citron's claims, Shopify said the company hasn't heard from the Federal Trade Commission (FTC) about the matter. But Citron said it is "certain that the company will face an investigation for selling business opportunities."

Now what

With Lutke continuing to refute Citron, investors will want to keep an eye out for any further developments regarding Citron's claims. Meanwhile, Shopify shareholders should be pleased with the company's quarterly results.

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Daniel Sparks has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Shopify. The Motley Fool has a disclosure policy.