- GigaCloud Technology Inc (GCT) is a Chinese e-commerce company whose stock has tripled in recent months on excitement of the B2B marketplace, GigaB2B, which we believe is misunderstood.
- According to GCT, GigaB2B has thousands of buyers and sellers, and its gross merchandise value (GMV) has climbed to $907m up >300% from 2020. Meanwhile GCT’s revenue has grown >150% during the same period.
- GigaB2B’s web traffic does not square with its growth story. Data shows that GigaB2B only has approximately 50 visits per month currently. Even at its peak in June 2022 (around GCT’s IPO), the platform only saw 1,000 visits per month.
- How does a platform generate so much revenue growth amid negligible web traffic? We believe GCT operates a complex web of undisclosed related party shell companies it uses to transact with itself and exaggerate marketplace growth. Consequently, we believe investors have been misled by reported key metrics including 1P revenue, 3P revenue, GigaB2B GMV, and Off-Platform revenues. (see introduction for definitions)
- We uncovered that shell companies pose as legitimate 1P buyers under suspicious names such as Steve Roger Digital Consultation LLC (Captain America reference) and General Sherman International Inc (Civil War hero reference). Corporate records show that these entities were formed by GCT employees.
- UCC filings further confirm these appear to be GCT entities. These lending documents list many of the 1P buyers and GCT as co-debtors to the same bank.
- We found a pattern of misspelled key names, non-existent addresses, and other forms of obfuscation with these entities. We consider this a hallmark of fraudulent actors.
- Several former employees corroborated our findings suggesting that it is standard practice for GCT to form entities at act as 1P buyers.
- Former senior executives implied to us that these are shell companies which lack balance sheets and hold no inventory. These shells create the illusion of marketplace activity while also serving as conduit to push GCT products to other platforms (Amazon, Wayfair, etc).
- Other former employees told us that these entities account for most of the 1P revenue growth, and that they are mostly based in China or when registered in the US, they are managed by Chinese nationals close to the company.
- Without the existence of these shell buyers, we believe GCT’s 1P revenue would be much lower. GCT would appear as a much less sexy B2C furniture reseller with most of its revenue classified as “Off-platform”.
- We believe GCT also inflates its growth by misrecognizing fulfillment cost within its 3P revenue.
- In 2023, GCT generated >$100m in last mile service revenue. However, former employees described that the company lacks infrastructure to support that level of business and said that it is highly likely that GCT pays third party logistics companies (UPS, FedEx) for these transactions and books the entire revenue. Thus, GCT seems to be disguising costs as revenue to inflate its top line.
- We wonder whether this cost revenue mismatch explains GCT’s low service gross margins (~16%).
- Import records indicate that >50% of exports from GigaCloud Technology (Suzhou) into the US flow to entities that resemble shell companies.
- ~27% of the exports we reviewed went to J&A International LLC, an entity which completely lacks warehouses, employees, or any operational presence. We confirmed with the county clerk that the registration address on J&A corporate records does not exist. Somehow this entity imported tens of millions of dollars in merchandise in just a few months!
- Other entities that imported products such as YH International (17% of exports) and Immortal Brands (8% of exports) are questionable. Not only do they show no evidence of commercial activity or presence but were registered to the same borrowed address from a commercial agent by Chinese Nationals
- Management’s abrupt deregistration of a Chinese related party entity in response to an earlier report by Culper Research might imply that these shells are involved in shady activities.
- GCT involvement with undisclosed related parties on the product distribution side, as well as shady entities on the import side, strongly suggests to us that GCT’s fantastic financials are the result of questionable activity. These entities can allow GCT to freely move costs and revenues on and off their books.
- These shell games appear vital to GCT’s growth story as alternative efforts to prop up the business. In 2023, GCT acquired Noble House out of bankruptcy to boost its growth via new SKUs and warehouses. However, bankruptcy documents reveal that Noble House’s struggles have continued with revenue down 70% year-over-year.
- Given the alarming concerns raised about undisclosed related parties, we are also skeptical of GCT’s auditor, KPMG Huazhen LLP. According to the PCAOB, they have only audited two U.S. public companies, GCT, and Hailiang Education Group which was also accused of fraud by multiple short sellers.
- In conclusion, we believe GCT is your run-off-the-mill China Hustle that is misrepresenting its business to inflate key metrics. GCT’s CEO and other executives have already sold >$85m worth of stock combined in the past few months. The CEO himself has sold ~$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.
Background
GigaCloud Technology is a company that provides end-to-end B2B e-commerce solutions for large parcel merchandise in the United States and internationally, most notably in Japan and the U.K. The company operates the “GigaB2B” e-commerce platform that integrates everything from product discovery to payments to logistics tools into one easy-to-use platform, per the company statements. Most of its suppliers are in Asia, while most buyers/customers are in the United States.
The company operates three distinct segments that they define as:
- GigaCloud 3P: “generates service revenues, including revenues from platform commission, ocean transportation service, warehousing service, last-mile delivery service, packaging service and others, by facilitating transactions between sellers and buyers in our GigaCloud Marketplace”
- GigaCloud 1P: “generates product revenues through the sale of our inventory in our GigaCloud Marketplace”
- Off-platform ecommerce: “generates product revenues through the sale of our inventory to and through third-party ecommerce websites.”
The “GigaCloud 1P” segment was 42.6% of total revenue in 2023 and is the largest revenue stream. “Off-platform e-commerce” segment, which sells to platforms such as Amazon and Walmart represented 29.1% of their total revenue from the same year.
Source: ( Link )
One of the key metrics for the company is the Gross Merchandise Value (“GMV”), defined by GCT as “the total gross merchandise value of transactions ordered through our GigaCloud Marketplace including GigaCloud 3P and GigaCloud 1P, before any deductions of value added tax, goods and services tax, shipping charges paid by buyers to sellers and any refunds”.
The company also states in its filings that “The growth in GigaCloud Marketplace GMV, including GMV from both GigaCloud 3P and GigaCloud 1P, reflects our ability to attract and retain sellers and buyers in the GigaCloud Marketplace. The revenues we generate in our marketplace are highly correlated to the amount of GMV transacted in the GigaCloud Marketplace” We ask readers to keep this quote in mind when reading the rest of the report, as it will be relevant along with our findings and opinions.
Over the past few months, the company has seen its stock price skyrocket by more than 400% and the company has been posting what seems at first glance fantastic growth over the last couple of years with a GMV of approximately $414 million in 2021, $518 million in 2022 and $907 million for the twelve months ended March 31, 2024. GCT has also justified its growth with significant increases in other metrics such as “Active 3P sellers”, “Active buyers” and “Spend per active buyer”.
Source: ( Link )
However, as we show in this report, we believe that behind this fairy tale is hiding a vast and complex network of undisclosed related entities that are critical to the company’s success.
The first red flag that caught our attention was the aggressive insiders selling, despite the company’s touted success in the last few months. Most notably, Larry Lei Wu, the CEO, has sold ~$16M the week leading up to the most recent earnings and Xinyan Hao, the COO, has dumped $12.7 worth of shares in the past week.
Source: SEC Filings.
The second thing that really caught our eye was the negligible web traffic on GIGAB2B’s website.
The website traffic of the company’s B2B website does not resemble the growth story the company presented to the investors
The fantastic growth in GCT’s key metrics over the years, especially the GMV, paints a picture of a marketplace increasingly bustling with activity. Yet, surprisingly, web traffic data shows that is very far from the reality.
According to the company’s annual report, https://www.gigacloudtech.com/ is its corporate website. After we enter this website, we can click “Enter the B2B Marketplace”.
This leads us to the B2B marketplace website at: https://www.gigab2b.com/
The company does not mention any mobile application for its B2B marketplace, therefore this B2B marketplace website should be the only main site that bears the sellers and buyers’ online traffic. Semrush is a third-party website that presents the web traffic data for different websites.
Note: Overview of the company’s GIGAB2B traffic data.
Note: Graph showing Organic Traffic for GigaB2B website for the past 2 years.
Note: Graph showing Organic Traffic for GigaB2B website since its inception.
Other web traffic estimators we checked, like SpyFu and Ahref, indicate similar abysmal traffic numbers for the site. We can see that the B2B marketplace website’s online traffic reached its peak in roughly Summer 2022, around GCT’s IPO, and has been in drastic decline since then. They also show virtually no traffic whatsoever before January 2022.
Google Trends results further show that there was basically no search interest for “gigab2b” in recent months.
We are curious how, on one hand, the company reports high growth metrics across the board, and on the other hand, its main B2B marketplace website’s online traffic dropped to nearly nothing in the meantime. How could all this growth and users exist if the key platform and asset does not have any traffic? We do not find any reasonable explanation for this phenomenon.
Nevertheless, what we have found in our research is a vast network of undisclosed related shell companies that we suspect the company is using to inflate most of the key metrics it is presenting to investors and is also a very probable explanation for the situation above.
GCT is at the Center of a Vast Network of Undisclosed Related Parties and Commercial Partnerships
We find evidence that GCT is related to a vast network of undisclosed Chinese-controlled entities in the U.S. that help the company manipulate and inflate their key metrics such as the Gross Merchandise Value (GMV), masking the real growth profile of its business. GCT is also possibly abusing these sales channels to inflate up to 40% of their revenue and sales numbers. The key characteristics of these undisclosed entities are:
- Secretly set-up and controlled by current/former GCT employees acting as agents, most of them based in China or controlled by a Chinese national when registered in the US.
- Former employees told us they are prevalent in GCT’s operations and are shell companies purely for distribution, with no balance Sheet or inventory.
- Have no import records, so they seem to be exclusively sourcing from GCT.
- Returns addresses are GCT warehouses, these entities do not operate nor own any operational facilities.
- We estimate revenue in the tens of millions of dollars by each entity. (via ASPs, SKUs listed, reviews etc.)
While we found e-commerce websites storefronts operated by GCT’s disclosed subsidiaries that seem to appear to be consolidated under Off-Platform revenue, we have uncovered that a large majority of the 1P segment might be generated through undisclosed related entities. At first these entities appear to also operate “third-party” storefronts but a deeper look reveals them to be very closely connected to GCT.
We uncovered these entities using various approaches such as 1) GigaB2B products searches on third-party e-commerce platforms, 2) former executives names in state databases, 3) addresses of subsidiaries, and 4) By searching for joint filings with GCT, such as UCC filings, in various databases.
Here we show a non-extensive list of the main undisclosed related entities that we found.
Source: Grizzly Research Analysis.
Below is a screenshot of a visual taken from the company’s filings showing how the different segments work. In this section we are focusing on the “GigaCloud 1P” segment, where the company buys inventory from its suppliers and then sells these products to resellers, who then list and sell the products on third-party e-commerce platforms such as Amazon or Wayfair. We also briefly mention the “Off-platform e-commerce” segment, where the reseller is GCT themselves, and as we explain, is more important than the company portrays.
We confirmed our research with several expert interviews. One former high-ranking GCT employee that we interviewed blatantly admitted to the fact that it is standard practice at GCT to use former and current employees to operate distribution businesses.
Interviewer: “We kind of found out when we conducted research, so we saw that a lot of entities that are selling GCT’s products on Amazon for example, they are not GCT’s subsidiaries but they are related companies, they have like former employees as CEOs”
Former Employee: “Do you mean this kind of entities are like under gist’s umbrella or are you talking about something else? So on Amazon you have like I could set up a seller store right an Amazon store on Amazon and be registered as a seller, what GigaCloud has done um internally is they have a bunch of people set up Amazon stores and then they sell through all those different Amazon stores right but those are still like one first one party or one first party because they’re all Giga Cloud controlled right but these guys need a company so they set up the company themselves and then they generate sales for GCT basically”
According to several former employees, most of GCT’s reported growth comes from supposed sales to distribution businesses of current and former employees, which GCT books as 1P revenue. They estimated that there are at least 25 and some estimated the number to be over 100. They added that most of them are U.S. entities controlled by Chinese nationals that work remotely from China.
“Yeah, I’d say that their growth is definitely from individuals within kind of that GigaCloud, uh, umbrella.”
It seems clearly standard practice for GCT to run the distribution through undisclosed related parties that operate off-balance sheet entities, as another high-ranking executive insisted that these entities do not carry any inventory, cash or debt and were purely distribution and booking entities. The justification that GCT seems to give internally is that it wants to have access to as many storefronts as possible, for flexibility and exposure, and Amazon and other third-party platforms limit the number of storefronts one company can operate. While this might be a practical excuse, the matter of fact is that operating through undisclosed related parties is plain and simply fraudulent. Additionally, we believe this to be an excuse for internal purposes to cover up the fact that GCT is using these entities to inflate its 1P revenue segment, as well as the GMV as we mentioned earlier.
“I mean, Larry’s even told me in his own words what I told you guys at the beginning, which is, without 1P our business wouldn’t survive.”
In other words, and as we continue to show throughout this report, GCT is nothing more than a furniture reseller which flexes its marketplace. Yet, the truth is that the company uses undisclosed related entities set-up by themselves to inflate its marketplace most important metrics. By adding these shell companies to the equation, GCT makes its whole business seem way more valuable than it is. But in reality, if these “1P entities” did not exist, most of the revenue would be booked as “Off-Platform e-commerce” revenue, as GCT is effectively selling directly to other e-commerce platforms customers.
“As we focus on expanding our GigaCloud Marketplace into a leading global large parcel B2B marketplace, we expect service revenues from 3P to grow faster than product revenues from 1P in the future, but we expect 1P to remain an important distribution channel for our own inventory.” ( Link )
These companies all operate storefronts that we believe generate a combined revenue of tens of millions of dollars, and are accounted for by GCT under the “GigaCloud 1P” revenue segment, while being undisclosed related parties controlled by GCT themselves. Below is a visual explaining how the scheme works.
Source: Grizzly Research Analysis.
Source: Grizzly Research Analysis.
Uniform Commercial Code (UCC) Filings Highlight a Deeper Connection Between GCT and the Undisclosed Related Entities
We found UCC documents that show GCT, its disclosed subsidiaries and all the undisclosed related entities that we introduced above being co-debtors to “East West Bank” of California.
In November 2020, a Lien Financing Statement was issued in the State of California between a list of co-debtors and East West Bank, as we show in the screenshot below, the list of debtors captures several of GCT’s undisclosed related entities:
The collateral posted for the debt encompassed substantially all the companies’ assets, and as a co-debtor, GCT would have been responsible for all due obligations.
An amendment to the Lien Financing Statement was filed in July 2021 to add the debtor “GigaCloud Technology (USA) Inc.” following Comptree renaming as such at the same time. The Lien has been terminated in June 2022.
Interestingly, GCT’s former Director and CFO served as the Managing Director of “East West Bank”, the Lien Financing Creditor, from 2013 to 2016, as stated in his short introduction we find in the company’s filings. ( Link )
It is also worth noting that the company “Compthunder International Inc.” used to share the same address as GCT “18961 Arenth Ave, City of Industry, CA 91748”. It is now sharing the same address as one of GCT’s subsidiaries “Tmall Inc.”.
This clearly constitutes additional strong evidence for the relationship between GCT and these undisclosed related entities, as the company would have no business being a co-debtor to these companies if they were not closely related.
In the following sections, we will introduce the main primary related entities we uncovered, what they do and how strong they tie back to GCT. First, we want to show the readers a few red flags we found interesting about these companies
Hallmarks of a Fraudster
Over our years of research, we have seen several patterns that we now consider hallmarks of fraudsters. Some great examples of these hallmarks include 1) unsuspicious or generic entity names, 2) hidden or fake addresses, 3) lack of contact information and web presence, and 4) constant misspelling of key names and addresses. Interestingly, the entities we uncovered have all these warning signs. We found especially some of the entity names such as “General Sherman” or “Steve Roger Digital” very amusing.
We noticed a lot of typos in official filings such as in the UCC filings for Comptree (now GCT USA). ( Link )
Apparently, they needed a few tries to type their address “18961 Arenth Ave, City of Industry, CA 91748” correctly:
We also find a similar situation in Nevada, with the former CFO struggling to write his name correctly when registering one of the undisclosed related entities, Comphome Corp. ( Link ) See below “Jospeh Huang”:
These are just a few instances of a pattern that in our opinion speaks to an effort to obfuscate and hide what is really going on.
We were also very surprised at one of the former employee’s confessions on the working conditions at GCT’s warehouses. He told us that the company would send a handful of trusted employees from China to the US to run these warehouses, while the rest of the workers were independent contractors. However, he said that these people were constantly monitored through security cameras directly from China. A certain “Jack Ma”, which he stated is a very prominent manager who runs the whole company’s logistics business directly from China, is the main supervisor even for the U.S. logistic operations. He added that he found this very bizarre.
“Jack would have security cameras in every facility and he’s watching his own people like in the office I found that really kind of bizarre”
This also raises concerns about what is really going on inside these warehouses and about the company’s working conditions, even in the US.
Below we show and explain in detail the operational process and importance of some of the entities that make up the vast and complex network GCT has set-up to help them inflate its key metrics such as the GMV or 1P revenue.
CompHome Corp
Amidst the opaqueness, formers that we interviewed told us about a 1P customer, a man internally nicknamed “Little Joe”. Little Joe was a constant presence at the office and even gave tips and seminars on how salespeople could increase their output. Litte Joe was presented as a prime example of a successful distributor, selling millions of dollars of merchandise per month and seemed virtually undistinguishable from an employee. Little Joe’s niche was distribution on Wayfair, and he seemed to be selling for GCT exclusively. Unfortunately, Wayfair only gives information on the store front, but not on the entity behind the seller.
We believe to have found Little Joe’s real identity and company. According to another former, Little Joe’s real name is Joseph Cothran. He is a former GCT employee and currently the CEO of CompHome Corp., yet another entity that GCT fails to consolidate.
Note that CompHome was initially a company created by several high-ranking GCT officers, but has been dissolved since, as shown in the screenshots below. We believe GCT dissolved and re-established CompHome Corp via Joseph Cothran to cover its traces. ( Link )
Note: Official Filings from Nevada State for the “original” CompHome.
Note: Official Filings from Arizona State for the “new” CompHome.
Steve Roger Digital Consultation LLC
We found several e-commerce storefronts, selling the same products as GCT and under the same trademarked brands. Below is a screenshot showing an Amazon storefront called “Pay_Low” that we found by searching for GigaB2B products on Amazon, which led us to find the company “Steve Roger Digital Consultation LLC”, the end seller.
Source: ( Link )
After checking the Nevada State official filings, we found that the former Managing Member of the company is none other than “Xin Wan”, GCT’s current CTO and Director. The managing member has since been changed and is now “XiaoXiao Li”, but still shares the same address, which is a P.O. box from UPS. Also note that the former Registered Agent was “XinYan Hao”, the company’s COO, who we find is involved in another undisclosed related entity, has since been changed to “Registered Agents Inc”.
Source: Nevada State Official Filings ( Link )
The trademarks used by this company to list its products are exclusively “LZ Leisure Zone”, “Flieks”, “Merax” and “Harper & Bright Designs”, which are all owned by GCT. There seems to be a similar connection pattern between all these storefronts and GCT which clearly shows a strong operational connection between them. The storefront also sells unbranded products that we can find on GCT’s marketplace. We provide various examples of Amazon listings from these brands, listed by the storefront “Pay_Low” and sold by the end seller “Steve Roger Digital Consultation LLC”, as well as the listings on GCT’s e-commerce platform. ( Link 1 ) (GCT Link 1 ) (Link 2) (GCT Link 2) (Link 3) (GCT Link 3)
Source: ( Link )
(Note: We highlight GCT’s trademark as well as the shipper/seller “Pay_low”, operated by Steve Roger Digital Consultation LLC”. Notice it uses the exact same description and pictures as we found on GCT’s website.)
Source: ( Link )
Source: ( Link )
(Note: Same remarks as above. The listing uses GCT’s trademark and the exact same description/images.)
Source: ( Link )
Source: ( Link )
(Note: Same remarks as above. The listing uses GCT’s trademark and the exact same description/images.)
Source: ( Link )
There is no doubt that this storefront generates a lot of money and is material to GCT, as we can see 335 product listings, with some products displaying hundreds of reviews and costing hundreds of dollars for the majority. Based on our analysis, this likely represents tens of thousands of orders and millions of dollars in revenue, if not more.( Link )
General Sherman International Inc
Like “Steve Roger Digital Consultation LLC”, we uncovered another e-commerce storefront, selling the same products as GCT and under the same trademarked brands, with “General Sherman International Inc” as the end seller.
Source: ( Link )
After checking the Nevada State official filings, we found that the former Registered Agent is “Xinyan Hao”, the company’s current COO, who was also the former Registered Agent for “Steve Roger Digital Consultation LLC”. The sole officer, president and director has since been changed and is now “Yanyan Lu”, but still shares the same address, which seems to be the address of a postal & shipping services company. Despite seemingly large volume stores most of these Amazon resellers are registered to UPS stores/P.O. box addresses, which strengthens our belief that these are nothing more than shell companies.
Source: Nevada State Official Filings ( Link )
The situation is exactly the same as with “Steve Roger Digital Consultation LLC”. The trademarks used for the products are again exclusively “Flieks”, “Merax” and “Harper & Bright Designs”, which all owned by GCT. The storefront also sells unbranded products that we can find on GCT’s marketplace. We provide various examples of Amazon listings from these brands, listed by the storefront “PrimeShop Pro” and sold by the end seller “General Sherman International Inc.”. ( Link ) (GCT Link) ( Link 2 ) (GCT Link 2) ( Link 3 ) (GCT Link 3)
Source: ( Link )
(Note: We highlight GCT’s trademark as well as the shipper/seller “PrimeShop Pro”, operated by “General Sherman International Inc”. Notice it uses the exact same description and pictures as we found on GCT’s website.)
Source: ( Link )
Source: ( Link )
(Note: Same remarks as above. The listing uses GCT’s trademark and the exact same description/images.)
Source: ( Link )
Source: ( Link )
(Note: Same remarks as above. The listing uses GCT’s trademark and the exact same description/images.)
Source: ( Link )
Again, similar to the previous company, this storefront lists 228 products, with some of them having hundreds of reviews and costing hundreds of dollars for most of them.
Comp Goods Corp.
Similar to both companies presented above, we found another prominent Amazon storefront selling the same products as GCT, once again, and under their trademarked brands, with “Comp Goods Corp” as the end seller.
Source: ( Link )
According to Nevada State official filings, the first president, director and general officer of the company was “Joseph Huang”, GCT’s former CFO. The sole officer, president and director as since been changed and is now “Qian Jia”, but still shares the same address, which is also a P.O. box from UPS.
Source: Nevada State Official Filings ( Link )
We exclusively find similar GCT owned trademarks such as “Merax” but also “P PurLove”, used by the company to list its products. The storefront also sells unbranded products that we can find on GCT’s marketplace. We provide various examples of Amazon listings from these two brands, listed by the storefront “Virubi” and sold by the end seller “Comps Good Corp”. ( Link 1) (GCT Link ) ( Link 2 ) (GCT Link 2 ) ( Link 3 ) (GCT Link 3 )
Source: ( Link )
(Note: We highlight GCT’s trademark “Merax” as well as the shipper/seller “Virubi”, another GCT’s trademark, operated by “Comps Good Corp”. Notice again it uses a similar description and the exact same pictures as we found on GCT’s website.)
Source: ( Link )
Source: ( Link )
(Note: Same remarks as above. The listing uses GCT’s trademark and the exact same description & images.)
Source: ( Link )
Source: ( Link )
(Note: Same remarks as above. The listing uses GCT’s trademark and the exact same description & images.)
Source: ( Link )
Similar to the previous companies, this storefront lists 285 products, with some of them having hundreds of reviews and costing hundreds of dollars each.
None of the companies mentioned above have any import records, which means they are solely responsible for the listing of GCT’s products.
Compthunder International Inc
We found this company acting as an end seller for Amazon Storefronts selling GCT’s trademarks branded products such as “Merax”, “Harper & Bright Designs”, “Flieks” or “Polibi”. It appears that not only this company sells the same brands as the other undisclosed related entities we presented above, but also sells the same products but in larger quantities. One of the storefronts operated by Compthunder International Inc lists a whopping 683 products, mostly priced above $100 and for some having hundreds of reviews. Note that the storefront name itself is one of GCT’s trademarks. ( Link )
Source: ( Link )
We uncovered in its official filings from the State of California that the registered address for the company is “385 Lemon Avenue, Unit E186 Walnut, CA 91789”, the same small building as “Tmall Inc.”, one of GCT’s subsidiary.
Source: ( Link )
Source: ( Link )
We show one example below of a “Merax” bed sold by Compthunder having 601 reviews, which probably generates a substantial amount of revenue with this sole listing.
Source: ( Link )
(Note: We highlight GCT’s trademark “Merax” as well as the shipper/seller “Polibi”, which is also one of GCT’s trademarks, operated by “Compthunder International Inc”. Notice it uses a similar description and the exact same pictures as we found on GCT’s website.)
Source: ( Link )
The CEO and CFO of Compthunder International Inc appears to be “Yuying Zhou”, conveniently, a Chinese national. We suspect this company to be another one of the undisclosed related entities controlled by GCT.
Gathering the 4 storefronts mentioned above, we find an aggregate of 1,531 listings which represents around 12% of GCT’s 12,300 SKUs at the end of 2022. Note that this represents only a fraction of the 25 to 100+ stores that the former employee told us existed, so this percentage is probably a lot higher. The number of SKUs further increased to 22,101 at the end of 2023, mostly from the Noble House acquisition.
GCT also operates Amazon storefronts on its own, for example with “Lepus”, which is owned and operated by “GigaCloud Technology Japan Co.,Ltd”. ( Link )
This storefront represents one of the only tangible proof of “organic” and disclosed revenue by GCT. It lists 201 products, most of them are similar to what the undisclosed related entities sell as well, and some of them have thousands of reviews, representing tens of millions of dollars in revenue. We also find storefronts operated by GCT’s subsidiaries “Tmall” and “GigaCloud Trading (Hong Kong)” but both with a lower volume of sales. ( Link ) ( Link )
This revenue falls into the Off-platform e-commerce segment, which only accounts for approximately 29% of the total revenue.
There were also several other companies exposed in a short report last year for having GCT insiders as their officers, we found further evidence that they are indeed undisclosed related parties that enter the same scheme as the ones we just presented.
Other Previously Uncovered Undisclosed Related Shell Companies Orien Life Corp, Orien Home Corp & Nixxon Digital Marketing Inc Have a Deeper Involvement in GCT’s Scheme
Orien Life Corp
Starting with Orien Life Corp. We highly suspect that this entity is used by GCT to inflate its financials and key metrics since it had and seemingly still under control of individuals with very close ties to GCT. The entity was incorporated on December 6th, 2016 in the state of Nevada, US. According to the corporate events shown below, GCT’s current Chairman and CEO, Lei Wu, was once its director and president, and GCT’s previous CFO, Joseph Huang, was once its treasurer and secretary. ( Link )
Currently, Orien Life Corp’s director, president, secretary, and treasurer roles are endorsed by one person named Zexue Wang. When the company responded to the short report published by Culper Research on the related party transaction issues, it stated that:
“The Company disclosed its related party transaction in accordance with the Form 20-F rules under the Securities Exchange Act of 1934 and applicable accounting standards in the filings made with the Securities and Exchange Commission.” ( Link )
Based on the evidence we found throughout the research, we believe the company has failed to disclose, among others, Orien Life Corp as a related party.
We also found a Chinese company called Suzhou GigaCloud Venture Service Co., Ltd (“GigaCloud Venture” thereafter, Chinese name: 苏州大健云仓创业服务有限公司). The registered address for this company is “9-802 Unit, inside Suzhou Industrial Park Xinghu Street No.328 Creative Industrial Park, City of Suzhou, Jiangsu, China” which is in the same industrial park as one of GCT’s main Chinese entity. Additionally, the company’s legal representative, Executive Director, and 100% owner is an individual called Zexue Wang.
We highly suspect this Zexue Wang from GigaCloud Venture is the same Zexue Wang who is also Orien Life Corp’s current director, president, secretary and treasurer. We also noticed that GigaCloud Venture was de-registered on October 15th, 2023. We found this timing of de-registration of GigaCloud Venture suspicious, as it happened only less than a month after the critical report published by Culper Research on September 28th, 2023. This incident makes even more convinced that these Zexue Wang are the same person.
We also found that Orien Life Corp has been selling similar furniture products as GCT on Amazon and Walmart.
Source: ( Link )
Note that this Amazon storefront is notably extremely prominent, way more than the ones we presented earlier in this report, with over 2,000 listed products and the storefront itself (not the products) having more than 1,000 ratings alone. ( Link 1 ) ( GCT Link 1) ( Link 2 ) ( GCT Link 2 ) (Link 3 ) ( GCT Link 3 )
Source: ( Link )
(Note: We highlight GCT’s trademark as well as the shipper/seller “Orien Life”, operated by “Orien Life Corp”. Notice it uses a similar description and the exact same pictures as we found on GCT’s website.)
Source: ( Link )
Source: ( Link )
(Note: Same remarks as above. The listing uses GCT’s trademark, a similar description and the exact same pictures as found on GCT’s website.)
Source: ( Link )
Source: ( Link )
(Note: Same remarks as above. The listing uses GCT’s trademark, a similar description and the exact same pictures as found on GCT’s website.)
Source: ( Link )
Interestingly, we noticed that Orien Life Corp’s contact phone number listed on Walmart is “(626) 912-8886”. Evidence points to this number directly belonging to GCT.
Indeed, there are a few places where this phone number also shows up and it ties back to the number that belongs to Comptree, GCT’s former name. For example, in the website Better Business Bureau ( Link ), Bulkea, one of GCT’s trademarks, also has the same phone number, and down below it shows Bulkea’s alternate Business Name is “Comptree Inc.”.
Another example we found on this website ( Link ), shows Comptree Inc. with the same phone number.
And last but not least, on this website ( Link ), we see a certain brand called “Churanty” which is selling home furniture, office furniture, home fitness equipment with this same phone number.
It turns out Churanty is also one of the trademarks that belongs to GigaCloud Technology (USA) Inc., one of U.S. subsidiaries of GCT.
Nixxon Digital Marketing Inc
Zexue Wang, that we presented earlier with Orien Life Corp and GigaCloud Venture, also appears as the current president, secretary, treasurer, and director of another company called Nixxon Digital Marketing Inc. Below is the information regarding Nixxon Digital:
Source: ( Link )
As shown in the screenshot above, Kunming Xu, one of GCT’s disclosed employees, used to be Nixxon Digital’s director, president, secretary and treasurer until late 2018. Between November 22nd 2020 and April 8th 2021, these positions were held by a certain “Zexue Wang”. We find that exact same person holding the same exact four positions during the exact same time frame with the company “Orien Life Corp”. There is no possible doubt that these two entities are related parties, and therefore undisclosed related entities to GCT as well.
Another incident that indicates Nixxon Digital might be a related party to GCT is that on the Nixxon Digital Marketing’s page from a third-party import/export website ( Link ), it is indicated that the possible website of Nixxon Digital Marketing could be www.o.ristand.com, with the following explanation “Website info is based on the email domains found in the Bill of Lading for this company/supplier. Data may not be 100% accurate.”
We think the above reference website for Nixxon Digital Market is a typo, because www.oristand.com, instead of www.o.ristand.com, is actually a previous version of GCT’s current Chinese version website https://www.gigacloudtech.cn/. Investors can click www.oristand.com, and then will be directed to GCT’s https://www.gigacloudtech.cn/. We were not able to find import data for Orien Life Corp.
We think after all this evidence, it should clear any doubt that both Nixxon Digital and Orien Life are undisclosed related parties to GCT. It appears Nixxon Digital is more on the import side of the business and Orien Life is more on the distribution and sales side of the business.
KeyWay Inc
This company operates a website called “mlezan.com” which sells furniture such as cabinets and lockers. We found it by searching for GCT’s warehouses addresses. ( Link )
This company boasts exceptional “Delivery Advantages” where they list all of GCT’s warehouses as theirs, whether it is in the US, Japan or even in the U.K. ( Link )
We find this very odd, as the website also has descriptions very similar to GCT’s, and is full of odd sentences which leads us to think it was not made by a native English speaker.
It turns out Keyway Inc., the company behind the website, was incorporated by a Chinese national named “Rui Yu”.
Source ( Link )
Former Insiders Corroborate Further Suspicions
We spoke with several insiders, including former suppliers to GCT. Our interviews confirmed our suspicions. First, all interviewees agreed that the financials, especially the profit margins, that GCT portrays to investors are void of any logic and magnitudes above what could ever be expected from a furniture reseller.
“The company’s profit is much higher than the comparables in the sector, and I believe its financials to be fabricated.”
Worse yet, former insiders told us that the company is running essentially a zero margin business, but is likely hiding a lot of the costs in undisclosed off-balance sheet entities, even though the former insiders could not tell which concrete subsidiaries were being used for this scheme. Consequentially, the experts and insiders we interviewed also strongly suspect GCT’s cash balance to be untrustworthy.
Throughout our research, we also encountered many people who spoke negatively about GCT’s general business practices. In one instance, a legitimate small reseller alleged GCT of pulling a bait-and-switch scam on him. The merchant got multiple orders for GCT products and consequentially bought product from GCT, only to find out that all orders were cancelled shortly after, yet GCT refused any refunds. While we don’t believe this is going on at a large scale, the negative impressions speak to overall bad business practices displayed by GCT.
In conclusion, GCT has set up a vast and complex network of undisclosed related shell companies that allow them to freely manipulate and inflate its key metrics and financials on the 1P side of their business. But as we show in the following section, we found evidence that the company is also manipulating its 3P business with various shenanigans, including shell companies once again.
GCT Appears To Be Inflating its 3P Revenues; Similar Presence of Shell Companies
The 3P Revenue segment, which is also the “Service Revenues” segment, represented slightly more than 28% of the company’s total revenue in 2023. Most importantly, two sub-segments, the “Ocean Transportation Service” and the “Last-Mile Delivery Service”, which constitute the company’s transportation business, both represent more than 60% of the 3P revenue combined. We find evidence that GCT has been inflating revenue from both its transportation business segments by unduly booking tens of millions of dollars in revenue on the back of third-party companies performing the services on their end, as well as many red flags around their import records through what we believe are shell companies.
More Than Half of the 3P Revenue Segment is Not Generated by GCT
We found evidence that GCT has been using accounting that allows them to book full revenue as the agent, while outsourcing these services to third parties (for example UPS, FedEx, etc. for the last-mile delivery segment). Ocean Transportation Service and Last-Mile Delivery Service together account for approximately 63% of GCT’s 3P revenue, generating respectively $19.7 million and $105.9 million in 2023.
The issue is, GCT only coordinates these services for the customers, but does not perform them. One of the formers we interviewed told us that GCT handled a very small portion of the deliveries by themselves, and that almost all of the deliveries were made by third parties such as FedEx or UPS.
They were even surprised when we told them that GCT was booking the full revenue from the delivery as their own “Last-Mile Delivery services” and explained to us that the company was charging transportation services to the end-customers, for example an Amazon customer, based on estimates from past invoices issued by the logistics companies. In other words, when a customer buys GCT’s products from Amazon from one of GCT’s controlled entities, they pay a delivery fee that GCT seems to book entirely as “Last-Mile Delivery services” while in fact the delivery is entirely handled by third parties such as FedEx or UPS.
Interviewer: “Would these deliveries be booked as last-mile delivery services revenue?”
Former Employee: “No… If it is last-mile delivery revenue then it’s a miscalculation.”
Interviewer: “Because the last-mile delivery revenue is actually a $100 million”
Former Employee: “Oh that’s what they say? Do they say that they’re generating a $100m in revenue?”
Interviewer: “Yes, it is actually more than a $100m”
Former Employee: “Then that has to be referencing to that relationship with FedEx. On top of it, they do have final mile delivery trucks, but they have a dozen at most, I believe. And those do not generate a ton of revenue honestly…”
This issue was raised in a previous report written by Culper Research in September 2023, who found that GCT had only registered around seven trucks for their business, which our experts also confirmed in the interviews we conducted. Below is a visual that explains how the scheme works.
Source: Grizzly Research Analysis.
The ”Ocean Transportation Service” segment seems to be following the same scheme, as one of the former employees confirmed, where GCT adds very little value besides coordinating the shipments, but books the full invoice from the third parties freight companies. Indeed, GCT does not possess any ocean transportation infrastructure, capacity or licenses.
Recent Import Records Show Majority of Shipments to Shell Companies
Import data shows that GCT has recently been shipping more than half of its shipments from China to companies that we suspect are either related parties or shell companies as none of them show enough substance to be autonomous commercial entities. Below is a table showing the percentage of shipments made from GigaCloud Technology China to companies in the U.S.:
Source: Import Genius, Grizzly Research analysis, April 2020 to April 2024.
The biggest importer, J&A International LLC, is a company that was incorporated in January 2021 in Colorado. The registered agent of the company is a certain “Guoqiang Lai”, a Chinese national, with a registered address that we found is completely fabricated and that official databases show simply does not exist. This company accounts for at least 27.3% of shipments from GigaCloud Technology China, most of these shipments were made between September 2023 and January 2024 with almost 1,000 shipments during this period. Before and after this period, the company was receiving virtually no shipments from GCT China. These shipments represent tens of millions of dollars in merchandise value.
Source: Import Genius, Grizzly Research analysis.
Surprisingly, we cannot find any information related to this company’s operations. Even worse, as mentioned earlier, the company is seemingly registered at a completely fake address in Brighton, Colorado. The address is “219 S 16TH AV DR SUITE A BRIGHTON CO 80601 BRIGHTON CO US”. ( Link )
According to the official property search website of Adams County ( Link ), nobody named “Guoqiang Lai” or “J&A International LLC” owns a property. The address does not exist as the closest street numbers are “213” and “223”, both owned by random individuals. “S 16TH AV DR” street numbers do not even go up to 200, as shown in the screenshots below from Adams County official databases.
We called the county clerk who confirmed that the address J&A gives does, in fact, not exist.
We find very odd that GCT is shipping more than 27% of all their shipments to a company with a single “random” Chinese individual registered at a fake address.
The Second and Third Biggest Importers Also Show Obvious Red Flags
The second and third biggest importers in the list besides GCT USA, which are YH International Inc. and Immortal Brand Management Co., Ltd, are both registered at the same address “100 N Howard St. Ste R Spokane, WA 99201”. This address is a third-party registered agent address from the company “Washington Commercial Registered Agent”. Similar to J&A International, both companies have Chinese nationals “Qiufang Sun” and “Xianyi Cai”, respectively, as their registered agent and do not show any clear commercial activity on the Internet or contact information. ( Link )
Both companies also show spike in shipments that lasted a few months with almost 20% of GCT China’s total shipments. YH International received 560 shipments from GCT China between January 2024 and April 2024, right after J&As shipments quantity fell. Immortal Brand Management Co., Ltd. Saw a spike in shipments during Q4 2023 and has consequently been dissolved.
GCT’s Import Activity Raises Further Concerns
We strongly suspect that GCT is playing a similar game to what they do on the product distribution side, by using current and former employees or controlled parties to set up entities that either take over some of the import related costs or are used in inflating the 3P metrics.
Our suspicions are further supported by the inconsistent import patterns that GCT’s disclosed subsidiaries show. Following the identification of the subsidiaries that GCT uses to import its products, we find that between January 2021, when Comptree ceased to import goods, and May/June 2022, when GigaCloud Technology USA and Tmall started to imported goods, no shipments under any of GCT’s disclosed subsidiaries have been recorded. The screenshots below show the import history of Comptree, GigaCloud Technology USA and Tmall. Note that the time frames for each company represent the very first shipment recorded to the last one to date.
Source: ( Link )
Source: ( Link )
Source: ( Link )
Surprisingly, or not, we found that Nixxon Digital Marketing, one of the undisclosed related entities that we mention earlier in our report, has a very compact import history starting from May 2020 and ending in June 2022. In other words, Nixxon Digital Marketing imported goods until the exact same month when Tmall and GigaCloud Technology USA started importing goods themselves. It also perfectly covers the void time frame where GCT did not import any goods by themselves.
Source: ( Link )
Adding the fact that Nixxon Digital Marketing shares the same suppliers for these imports as Comptree and Tmall, it appears evident that GCT has been importing goods via this undisclosed related entity. This would enable GCT to conveniently shift costs to these off-balance sheet entities or again manipulate the 3P revenue with the Ocean Transportation segment, where GCT also books its costs as revenue. None of the formers we interviewed about the import entities that we found had any idea of them even existing, and seemed quite puzzled by their existence.
Additional Concerns Surrounding GigaCloud’s Acquisitions, Auditors and Spending Claims
The Noble House Acquisition is Simply a Cover for GCT’s Growing Fraudulent Scheme
In October 2023, GCT acquired the company “Noble House Home Furnishings LLC”, a B2B distributor of indoor and outdoor home furniture for approximately $77.6 million. GCT funded the acquisition using cash. The main highlights of this acquisition were assets such as inventory, warehouse leases and a vast catalog of more than 8,000 SKUS. According to the company, the acquisition was a “pivotal moment:
“The acquisition of Noble House is a pivotal moment for GigaCloud, expanding our operations into Canada and adding a new sourcing origin in India […] In addition to giving us more geographical diversity within our supply chain and enhancing our fulfillment and logistics capabilities, Noble House adds scale and product diversity to further expand GigaCloud’s B2B marketplace. With over one million five-star reviews online, Noble House exemplifies significant brand value, reinforcing its strong market standing with the inclusion of iconic brands Christopher Knight and OkiOki. We believe this acquisition substantially fortifies our ability to provide an enhanced B2B buying and selling experience for every participant on our marketplace.” ( Link )
They also stated that:
“Noble House contributes product revenues to our GigaCloud 1P and off-platform e-commerce revenue streams, while Wondersign contributes service revenues through its catalog subscription services, and product revenues through the sales of its Catalog Kiosk displays.” ( Link )
We find that the company did not disclose all the material details related to the acquisition. According to the presentation dedicated to their recent acquisitions, published in December 2023, everything seems to be going great:
Source: Noble House & Wondersign Acquisition Presentation (Link)
GCT highlighted strong numbers from Noble House with 8,000+ SKUs, almost $500 million in gross revenue for 2022 and more than 2.3 million square feet of warehouse space. They also said that they aimed for profitability after 6 quarters.
In another press release from their Q3 2023 earnings, the company stated that:
“Subsequent to the completion of the acquisitions of Noble House and Wondersign, the Company expects its total revenues to be between $217 million and $223 million in the fourth quarter of 2023. (Revenues for Q3 were $178.2 million).” ( Link )
Following this press release, the company held an earnings call where they gave more clarity on the acquisition after a question from an analyst:
“So for the fourth quarter, we didn’t close our Noble House acquisitions until November 1, and we anticipate approximately $30 million of our revenue guidance will be contributed by Noble House. But going forward, we don’t plan to provide two separate revenue guidance in our press release. The way we look at it is we’re going to provide a single combined revenue number as we’re trying to integrate the Noble House business. So it’s going to be increasingly difficult for us to just single out what the Noble House revenue guidance is going to be.”
Why would Noble House only contribute $120 million annualized revenue when it generated close to $500 million gross revenues in 2022? After going through the bankruptcy documents, we found that Noble House was actually a sinking ship with revenue collapsing and debts growing:
Above is the most recent and comprehensive “Monthly report” that Noble House had to publish under the bankruptcy process and is for the month ended September 2023 (Acquisition closed in October 2023). We can see that the total revenue of all subsidiaries only amounts to approximately $12.5 million, which gives us $150 million annualized with at least $50 million losses. In other words, Noble House has seen its sales decrease from $491 million in 2022 to $150 million in 2023. GCT was completely aware of this at the time they published the presentation showing the 2022 numbers. This leads us to think that all these supposedly “great partnerships and strong supply chain” have substantially depreciated since the bankruptcy process. Note that financials were not prepared under the GAAP rules.
We also notice alarming numbers on the balance sheet, especially with a $224 million “noncurrent operating lease liabilities” with $24 million of “current portion of operating lease liability”. How could GCT sustain the current capabilities of Noble House with such expensive operationally crucial commitments and recurring expenses?
GCT also has to take on the current debts of at least $75 million, which are dedicated to the supply chain and operations. We highly doubt that the supply chain will compromise on such debts while keeping their operations in regard to Noble House the same.
We believe that this acquisition was solely made for the purpose of covering GCT’s fake growth story and growing undisclosed related entities network. Indeed, besides new additional revenue, the acquisition is supposedly providing GCT with six warehouses across the U.S. as well as more than 8,000 SKUs. Even though the bankruptcy documents show that these new products have been unattractive for a while, GCT can very conveniently use them as a justification for its growing sales and revenue, as they already stated that Noble House products revenue will contribute to their GigaCloud 1P and Off-platform e-commerce revenue streams.
Interestingly, one of the former employees we interviewed told us that when the acquisition was announced, the CEO himself told employees the logic behind this acquisition was also to do “Branding-As-a-Service”.
“I asked him (Larry Wu) right before I left why he bought them and he just told everybody as the same thing he told me which is branding as a service so he feels like if he can get control Brands as well bring them into his Warehouse […] for example the Christopher Knight brand it’s the Noble House brand which is a popular seller on Amazon”
This corroborates our ideas of GCT growing its SKUs also potentially through the acquisition of “popular” brands in order to inflate their 1P revenue stream with the undisclosed related entities. In the end, the company will keep selling its products through third-party ecommerce platforms.
A Head Scratching Auditor Track Record
The engagement partner Jing Wang from KPMG Huazhen LLP have only audited two public companies, according to PCAOB. GCT and the other one being Hailiang Education Group (HLG). HLG was accused of fraud by Citron Research in 2018 ( Link ). HLG went private in 2022.
Research & Development Expenses Do Not Match the Company’s Statements and Ambitions
GCT has been highlighting its technological capabilities and development around its platform and operations countless times. Between proprietary data and AI-powered software, analytical and predictive tools and a “leading B2B e-commerce platform”, the company seems to be at the edge of technological development. Its financials show a completely different story.
GCT’s platform was launched in January 2019 and AI was already mentioned in filings dated as of May 2021. But as shown in the screenshots below, filings reveal that the company did not have any R&D expenses or R&D related capitalization for the years 2019, 2020 and 2021. Note that filings prior to 2019 are not available.
We wonder how this could possibly be the case when the company clearly states that as of December 31, 2020, they had “a deep bench of 102 IT personnel dedicated to building next generation tools and systems.” ( Link )
We only find R&D expenses starting 2022 with a mere $1.426 million or approximately 0.3% of total revenue for the whole year, and $3.925 million in 2023 or a little less than 0.6% of total revenue for the whole year. We would be truly surprised if GCT could develop and maintain such technology spending a tiny fraction of what specialized companies spend to develop theirs. Even more when only a few of their employees had master or doctor degrees the year prior.
The company clearly breaks down the General & Administrative and Selling & Marketing expenses but stays vague when it comes to the Research & Development with a simple statement:
“Our research and development expenses primarily consist of IT- and platform-related personnel costs, including share-based compensation expense associated with our engineering, programming, data analytics, and product development personnel responsible for the design, development, and testing of our platform, rental and depreciation expenses associated with the use of facilities and equipment of research and development personnel, and information technology costs.” ( Link )
They also state that as of December 31, 2023, approximately 280 employees contributed to the research and development functions. Even if the $3.925 million was fully used to pay the R&D personnel, which is not the case according to the quote above, the salaries would still be suspiciously low for these kinds of positions, even in China. We wonder how little money is truly going into the development of their B2B platform and their proprietary “AI” technology, while the company clearly stated that it is of importance for its operation efficiency, critical in their industry.
“Our ability to improve our operational efficiency depends on our ability to invest in our technology infrastructure and platform, including our virtual warehousing solution and AI technology. We also invest in our research and development personnel for the design, development, and testing of our platform, and incur software development costs for the internal-use software and our Group’s websites. We successfully improved our warehouse management solutions over the past years”
Underwriter Downgrade Suggests Red Flag
In 2021, GCT filed the registration file, and back then the underwriters are Bank of America Securities and Wells Fargo Securities, however, in July 2022 when the company filed F-1, the underwriter changed to Aegis Capital Corp. We deemed this kind of underwriter downgrade as a red flag.
Big Changes on Company’s Board of Directors and Insiders Have Already Been Selling
Usually, big change on the board of directors is never a good sign for shareholders. In August 2023, three directors either resigned or retired from the board, and the company added two new directors to the board.
In addition, significant shareholders, JD.com and Redstar, recently filed a Form-4 showing that they have sold all of their shares.
More recently, right after the latest company’s earnings and as soon as insider selling was allowed again, insiders have been dumping the stock through multiple sales. We count multiple insider sales by the CEO Larry Lei Wu, the CFO Kwok Hei David Lau, the COO Xinyan Hao, as well as other executives and beneficial owners for a combined total of over $85m worth of shares. Most notably, the CEO Larry Lei Wu sold more than $45 million worth of shares since March 2024.
