Capybara Research has accused U.S. mobile payment provider FingerMotion of engaging in ‘‘extensive’’ stock promotion and accounting ‘‘gimmicks.’’ The stock fell more than a third in value Tuesday after the short seller’s attack but pared some of the losses after FingerMotion’s rebuttal.
The company derives most of its revenue from mobile payment and top-up services, which Capybara sees as ‘‘overly complicated’’ and a ‘‘deeply flawed business model that generates ‘‘little-to-no margin.’’
The company’s shares surged from about $1.30 in early June to nearly $8 last month. However, Capybara argued in a short report Tuesday that the recent run-up in FingerMotion’s stock price is the result of an ‘‘aggressive and pervasive’’ promotional campaign.
During this rise, FingerMotion insiders unloaded stock, Capybara noted, adding that the company recently filed a prospectus to raise up to $300 million through offerings, including $25 million through an at-the-market (ATM) agreement with Univest Securities. This opens the door for massive dilution for shareholders, warned Capybara.
The short seller also claimed that FingerMotion appears to rely on accounting gimmicks to project strong revenue growth, while the true profitability of the company is ‘‘quite bleak.’’
FingerMotion shares fell nearly 35% Tuesday to $4.58 each but Capybara believes the stock is poised to head lower to $1 per share, which would translate into an 85% drop from Monday’s close.
The shares were up more than 12% Wednesday after FingerMotion rebuked the short report, alleging it contains ”many errors, unsupported speculations and inaccurate interpretations of events.” The company said it believed it was the target of a ”coordinated action” and that it was investigating the matter.
About Capybara’s suggestion that it was preparing to sell equity, FingerMotion said that it was ”aware that any fund raising at current levels would be entirely too dilutive” to shareholders. It added that it has no plans to utilize the $25 million ATM and that the total $300 million shelf offering ”is in place to enable thoughtful access to capital should the need arise.”