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Market Insights

Shopify gains a sign of things to come?

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Stock of the week: Shopify

In a week that saw a lot of stocks and major indices outperform, there were a few outliers on both sides. Some couldn’t keep up with the S&P 500’s 4% weekly gain, but there were others that stood above the crowd. One of these was Shopify, posting an 11.3% gain over the period.

This is a zoomed in view of the chart since the 10 for 1 stock split.

Shopify1

For a longer-term view, take a look at the chart below:

Shopify2

It’s noteworthy that by the time of the split, the Shopify stock price had nearly completed a round-trip to the March 2020 lows. However, the stock split changes nothing about the company fundamentals. One thing that did change however was the approval of non-transferable ‘founder shares’ for CEO Tobi Lutke.

The idea is to ensure that the CEO secures 40% voting power as long as he continues to serve Shopify as a board member, executive officer or consultant, and more importantly incentivise Lutke’s long-term involvement with the company he founded.

  • The progress we have made advancing our vision for the future of commerce would not have been possible without our founder and CEO, Tobias Lütke.
  • Mr. Lütke established a company whose mission is clear – to make commerce better for everyone – and activated an entire ecosystem to support entrepreneurship in an age where power increasingly gravitates to the largest enterprises.
  • As the founder, Mr. Lütke is equipped with the combination of technical knowledge, strategic vision, industry expertise and thoughtful leadership to continue to develop and motivate the high-performing and innovative organization Shopify has grown into today.
  • As we look to the future and pursue our vision for a 100-year company, Mr. Lütke will play an integral role in the continued support and execution of Shopify’s long-term strategy.

Strong leadership is likely to be required given the challenges facing the business. The company has just announced that Jeff Hoffmeister, a Morgan Stanley veteran of over two decades, will take over as Chief Financial Officer.

The rapid changes in consumer spending since the pandemic have been a rollercoaster ride for the firm. The initial lockdown boom ignited hopes of an online revolution, but this was followed by a shift back towards services spending once lockdowns were lifted. It’s not clear yet what the ‘new normal’ will like.

CEO Lutke said in July that

“What we see now is the mix reverting to roughly where pre-Covid data would have suggested it should be at this point. Still growing steadily, but it wasn’t a meaningful 5-year leap ahead.”

Unfortunately, Shopify had made a big bet that it was a leap… The $1.2 billion loss in Q2 came alongside a warning of further losses throughout the rest of 2022. Back in July, the company also announced plans to cut 10% of their 10,000+ workforce as part of efforts to cut costs.

Could competition with Amazon intensify? Shopify recently pushed back against Shopify merchants looking to include a “Buy With Prime” button at the checkout. Marketplacepulse report that this is now being flagged by Shopify as a violation of the ToS:

“You have a code snippet on your storefront that violates Shopify’s Terms of Service. This script removes Shopify’s ability to protect your store against fraudulent orders, could steal customer data and may cause customers to be charged the wrong amount,”

The move is consistent with Lutke’s anti-Amazon musings:

“Amazon is trying to build an empire, and Shopify is trying to arm the rebels”

Shopify’s acquisition of logistics provider Deliverr signals an intent to improve the benefits they may offer to merchants, but can they catch up to Amazon’s death star?

Not investment advice. Past performance does not guarantee or predict future performance.

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