Is GigaCloud a Scam?

I recently published an article on Seeking Alpha about the company GigaCloud (GCT). There have been quite a few comments about the topic: Is GigaCloud a scam?

This idea is on the minds of investors, partly because there have been two short reports out in the last year, one from Culper Research and one from Grizzly Research. Together these reports accuse GigaCloud of making up their numbers and insinuating that there is no way this company is this good. I cannot rebut their full arguments here, but I’ll make a few comments.

First, it is my understanding that Publicly listed companies that are scams are rare. There certainly are a few high profile stories; but ever since Sarbanes-Oxley it is difficult to pull of scams for a public company. I recently listened the the Acquired Podcast on Enron. The argued that main result of SO has been that frauds are harder to perpetrate in public companies, so most frauds stay as private companies.

There are obviously exceptions to this rule of thumb. Luckin Coffee may be a parallel some will draw: a Chinese company that inflated growth and income. The problem with this paralle is that Luckin posted YoY revenue growth of 558%, rather than GigaCloud’s ~40%. Luckin IPO’d in 2017 and their fraud was discovered by 2019. If GigaCloud is a fraud, perhaps they should be found out soon, within two years of their IPO. If the company continues to operate and there are substantiated claims of fraud, then the company is most likely legit.

Second, I have done a bit of scuttlebutt. GigaCloud responded to the Culper report with an independent third-party report. While GigaCloud cited two reputable firms (White & Case LLP and FTI Consulting (China) Limited) in the report, I feel uncomfortable trusting a press release from GigaCloud saying ‘we’re not fake.’ I would appreciate anyone who can comment on this independent report. I tried contacting a number of people in both companies, but they are big firms and no one got back to me.

I did, however, manage to speak to someone at Wondersign, a company GigaCloud recently acquired. I spoke to a middle manager who confirmed that their company had, indeed been acquired by GigaCloud. He said that the acquisitive was going fine.
Third, it seems to me that GigaCloud are not acting like a fake company. They recently made two acquisitions with cash (Wondersign and Noble House). If the CEO Larry Wu were looking to line his pockets, they issue stock rather than spend cash on these purchases. Further, they have domiciled the US in the last year, putting themselves under more scrutiny. They are looking to prove themselves; they are not looking to hide.

A few others in threads on Seeking Alpha have done similar work.

Third, it is comforting to me that Stephen Cress, who runs the Seeking Alpha quant has gone out of his way to defend the company in two separate articles. His role is to manage the quant, and the fact that he has gone out of his way to defend this business is unusual. It shows a that Cress has a high degree of certainty the GigaCloud is legit; Cress is putting his credibilty at stake in a way he does not need to. Cress even visited a warehouse in New Jersey to verify that the business is not fake. Similarly, the public acclaim

Fourth, I was impressed that the CEO appeared in an interview with Cress and the Seeking Alpha team. I found the CEO to be direct and that his answers made sense.

Fifth, there is a question about the auditor, KPMG Shangahi. There was a thread discussion about whether this is a good auditing firm or not. I’m not an auditor, nor do I understand all the ins and outs, but it is a big four firm. The Shanghai office has had a few mia culpas when their work has been cross referenced, but this does not mean they are facilitating fraud.

Taking all this together, my feeling is that this company is most likely genuine. I have not done enough work to say 100% it is; I would put my feeling as 90% probability it’s legit. I am considering checking out a warehouse myself, but I don’t live near one.

Appreciate an engagement with this topic.