GigaCloud gets bullish initiation but slides on short report

Shares of GigaCloud Technology (GCT) are sliding on Wednesday following a short report by Grizzly Research, accusing it of being “another China hustle inflating key metrics using undisclosed related party shell companies.”

Meanwhile, Maxim initiated coverage of the stock on Wednesday with a Buy rating as it sees large upside potential in the company’s large parcel business-to-business marketplace and believes GCT can generate 10%-15% organic sales growth over the next 3-5 years.

DISGUISING COSTS AS REVENUE: Grizzly Research issued a short report on GigaCloud, which the short-seller calls “a Chinese e-commerce company whose stock has tripled in recent months on excitement of the B2B marketplace, GigaB2B.” The firm argues that GigaB2B’s “web traffic does not square with its growth story” and alleges that “GCT operates a complex web of undisclosed related party shell companies.” GCT “seems to be disguising costs as revenue to inflate its top line,” claims the firm, which contends that “GCT’s fantastic financials are the result of questionable activity.” The firm believes “GCT is your run-off-the-mill China Hustle that is misrepresenting its business to inflate key metrics,” it concluded.

“GCT’s CEO and other executives have already sold >$85m worth of stock combined in the past few months. The CEO himself has sold about $16M the week preceding the most recent earnings, and >$44m in the past few months. Former significant shareholders like JD.com and Redstar have all dumped their shares,” the report adds.

GigaCloud had not responded to The Fly’s request for comment at time of publication.

BUY GIGACLOUD: Meanwhile, Maxim initiated coverage of GigaCloud with a Buy rating and $69 price target. GigaCloud Technology empowers suppliers and resellers to deliver large-parcel merchandise to consumers with fewer touch points and lower costs. The network effect from adding suppliers and resellers to its business-to-business marketplace and its own first-party efforts has enabled it to grow much faster than the furniture category, and the firm expects market share gains to continue. Maxim believes GigaCloud can generate 10%-15% organic sales growth over the next 3-5 years compared to a mid-single-digit normalized category rate.

At Q1 end, GCT held $196.2M of cash or 13.4% of its share price and no debt. The firm believes operations and growth can be funded without the need to raise capital.

PRICE ACTION: In afternoon trading, shares of GigaCloud have dropped over 5% to $29.85.