THG’s share price tumbled almost 20 per cent on Monday as a wider sell-off in formerly hyped technology companies gathered pace, taking the British ecommerce company’s market value below £1.5bn for the first time.
Shares in the Manchester-based group, which specialises in selling beauty and nutrition products to young and image-conscious consumers, have crashed more than 80 per cent in the past year, as analysts and investors have raised questions about THG’s technology, strategic direction and corporate governance.
THG, formerly known as The Hut Group, became London’s biggest IPO in five years in September 2020, but last week warned investors that full-year profits for 2021 would miss its previous guidance due to effects from commodity prices and foreign exchange. On Friday, analysts at Citigroup downgraded their forecasts for THG’s earnings before interest, taxes, depreciation and amortisation from £177m to £164m for last year.
The fall in THG’s share price came as technology stocks around the globe experienced sharp declines on Monday, with highly speculative companies that had been favourites of retail investors bearing the brunt of the sell-off.
An investor whose firm has a short position in THG’s stock said its decline was driven by the wider tech sell-off, noting that a number of companies backed by Japanese technology conglomerate SoftBank had also fallen sharply, including Germany’s Auto1 and Norway’s Autostore.
One analyst said: “Hot stocks of 2021 have been correcting dramatically as crypto is imploding.”
THG founder Matthew Moulding has caused a stir in the City by lashing out at short sellers betting against his company’ stock. In October, THG’s shares fell by more than a third in a day after Moulding claimed the online retailer was under a “short attack”.
While data show that THG’s shares are outside the top 50 most shorted stocks on the London market, Moulding has previously claimed that a cabal of short sellers with undisclosed positions operating from “the Bahamas or from Switzerland” have pushed down the group’s shares.
The beauty and nutrition retailer shared data with the FCA in January, claiming its shares were subject to irregular trading in October last year.
Following THG’s investor presentation in October 2021, a Numis employee sent clients a note that stated the company had “irregularities in accounting”, which it then retracted and issued an apology for in November. The Numis employee who sent the note was a junior member of the sales team, who had only recently joined the firm, according to people familiar with the matter.
The share price of the ecommerce group has plummeted from a high of 799p in January 2021 to 121p on Monday. The earlier rally in THG’s shares at one stage took its market value above £8bn, based largely on excitement around its Ingenuity unit, which offers other retailers a system that will manage their ecommerce platform.
Expectations for Ingenuity were heightened in May last year, when SoftBank struck a complex deal giving it the option to buy a 19.9 per cent stake in the subsidiary for $1.6bn.
Analysts have become increasingly sceptical that SoftBank will complete the deal, however, given that THG’s overall market value is now just a third of the £4.5bn enterprise value for Ingenuity the deal implied.
Since striking the deal, SoftBank has indicated that it intends to significantly wind down the internal hedge fund unit that invested in THG, after the Japanese company’s founder Masayoshi Son personally incurred around $1.5bn of losses on disastrous trades on US technology stocks.