Shopify Inc. has raised its biggest equity financing to date, its third US$1-billion-plus financing in nine months, taking advantage of its soaring stock and strong earnings report last week as it speeds up plans to invest in its business.
Canada’s most valuable company said Tuesday it would sell US$1.55-billion worth of stock – rising to US$1.78-billion if its bankers exercise an option to buy stock – pricing 1.18 million subordinate voting shares at US$1,315 each. That was a 4.8-per-cent discount to its close Monday. That weighed on the stock, which fell 5.8 per cent Tuesday to US$1,300.24.
“Why the raise? Well, 2020 effectively fast-forwarded commerce five years into the future,” said Katie Keita, senior director of Investor Relations at Shopify.
“In this new reality where the centre of gravity is digital, we need to accelerate our investment plans. Raising capital strengthens our balance sheet to provide flexibility to be more opportunistic to build, partner and potentially acquire.”
Shopify, which provides an online platform for merchants to sell their wares and manage operations, has emerged as one of the biggest corporate beneficiaries of the pandemic – and a growing threat to e-commerce giant Amazon.com Inc. As more home-bound shoppers shifted buying online last year, Shopify increased its customer count by 64 per cent to 1.75 million merchants. Revenue nearly doubled in each of the past three quarters and the company reported its first back-to-back quarterly profits. The valuation of Shopify stock almost doubled over the past year, to about 38 times its estimated next-12-months revenue.
That makes Shopify one of the most highly priced large internet stocks at a time when analysts – and the company – warn it won’t repeat its blistering pace of growth this year.
“I think they’re in a position where they really don’t know what’s going to happen in the next year with the COVID uncertainty and how that’s going to drive growth,” Justin Anderson, a technology buy-side analyst with Mawer Investment Management in Calgary, said in an interview.
Shopify rolled out a series of features and initiatives last year to help merchants better manage their operations through the crisis. Amazon has also increasingly turned its attention to addressing Shopify’s growing competitive threat. The two don’t compete head on: Amazon runs an online consumer marketplace that sells its own goods and those from third-party merchants, while Shopify is used by retailers.
But Shopify has levelled the playing field for its merchants against the Seattle goliath. Several have become major brands that sell through many channels and often bypass Amazon, paying lower fees to Shopify than Amazon merchants do to the U.S. company. Shopify’s merchants sold more over the U.S. Thanksgiving weekend than third-party sellers on Amazon. In response, Amazon has reportedly struck a task force to figure out how to counter Shopify, and this year it bought a tiny Shopify competitor called Selz.
Against that backdrop, Shopify has amassed a war chest to fund its growth, taking advantage of soaring investor demand by selling more than US$1-billion worth of securities three times since last spring for a total of US$5.1-billion in equity and convertible notes. The company had US$6.39-billion in cash and equivalents and marketable securities on Dec. 31, up from US$2.46-bililion a year earlier.
For this raise, Shopify bypassed Canadian dealers as it has done before, using Wall Street banks Citigroup , Credit Suisse and Goldman Sachs to quickly sell the deal, known as an overnight block trade. Such trades are similar to “bought deals” on Bay Street in which underwriters buy the whole deal and take on the risk of reselling the shares. Its the fifth such trade for Shopify in the three years.
“A lot of technology companies tend to raise money when it’s available, because when it’s not and you need it that can be very challenging,” National Bank Financial analyst Richard Tse said. “It’s a smart move if they can do it.”
Shopify’s list of 2021 investment priorities includes building out a fledgling fulfilment network to help its merchants rapidly deliver orders to their customers and its recently launched consumer-oriented Shop app; expanding internationally; and bringing more capabilities to its platform to attract larger brands. The company is also looking to hire more than 2,000 engineers this year.
Mr. Tse said with so many priorities, “I suppose that’s a risk in terms of how it allocates its intellectual capital in terms of managing those growth avenues.”