On June 2nd, Grizzly Research posted an update on its short call on GSX after the first report released this February. According to Grizzly, “GSX publicly claimed student enrollment count and revenue are inflated by approximately 900%." Moreover, Grizzly claimed that GSX is conducting massive-scale illegal marketing activities. 

Since February this year, GSX has been shorted nine times by multiple shorting agencies, including Grizzly, Citron, Scorpio, and Muddy Waters, with the accusation of financial fraud, fake clients, inflating revenue and profits, lack of transparency, misrepresenting assets, internal trade, changing executives, etc.

GSX refuted yesterday the false allegations that the latest Grizzly’s report involves extensive data tampering, photoshopping, and inconsistent accusations. Plus, the company responded that it would seek help from the Economic Crime Investigation Bureau of the Ministry of Public Security.

GSX is accused of inflating its enrollment and revenue by 900%

In Grizzly’s latest report dated on June 2nd, Grizzly says it has access to student enrollment and revenue data that are more authentic than those published on GSX’s website and curriculum center through API of Gaotu, a brand under GSX. And the reported enrollment and revenue of GSX are found to be inflated by 900%.

“GSX’s user number growth follows a perfect linear pattern. This is implausible for organic user growth, as they naturally fluctuate over time.” Says Grizzly. According to the report, from May 8th to May 21st, it tracked GSX’s account creating process and sampled 790 thousand user files, less than 79 of which are real.

The report also mentions that the operating platform of GSX “WeiShi” updated all courses in April, and few of them charge. However, through monitoring, Grizzly finds out that the user number of “WeiShi” has barely changed since the courses have been updated in April.

Moreover, Grizzly suspects that GSX is engaging in illegal marketing activities on a massive scale, and believes that its marketing strategy depends on identity theft. Specifically, “GSX has been illegally purchasing massive amounts of WeChat accounts, personal information and engaging third parties to assist them in conducting illegal activities.” Says Grizzly.

Subsequently, short-sellers Citron Research and Muddy Waters, who have also publicly disclosed short positions in GSX, both retweeted Grizzly’s report. Citron even praised Grizzly’s work: “ If this company was domiciled in the US, it would not be trading today.” Muddy Waters says: “ (GSX) is a massive fraud.” 

GSX’s response: seek help from the Ministry of Public Security

Yesterday, GSX responded to Grizzly’s accusation, regarding that when anti-counterfeiters become counterfeiters, short selling changes from a positive mechanism to an inappropriate profiting tool. “This behavior has broken the bottom line in business.” Says GSX.

Regarding Grizzly’s access to API for getting more comprehensive data, GSX insists that Grizzly cannot gain complete data resources through API. “As a result, the revenue expectation in the shorting report is groundless.” Says GSX.

When talking about the user growth model, GSX believes Grizzly’s method is fundamentally wrong as it uses data collected from the front desk display coding, which does not match the user ID in the backstage. 

As for WeiShi’s user number,GSX says WeiShi is a live-streaming tool. The front page presents the recommended courses, which are substituted artificially and irregularly instead of constantly inactive. GSX points out Grizzly’s ignorance about its business.

GSX admits that it sometimes purchases WeChat operation services, but after checking the transaction listed in the report, out of the 68 deals, GSX only finds 13 approximately matching records, which amount to 279,800 yuan and all are usual trade. GSX says the report involves extensive data tampering, photoshopping, and inconsistent accusations. It claims that such blatant defiance has gone beyond the bottom line of shorting.

After the shorting, there is an insufficient amount of market share available for borrowing, which might lead to a margin closeout. From the perspective of GSX, facing potential substantial economic losses, short institutions take risks by openly falsifying evidence. GSX plans to seek help from the Economic Crime Investigation Bureau of the Ministry of Public Security.