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Shopify Inc. passed Royal Bank of Canada as the country’s most valuable company on Wednesday after the Ottawa retail software provider posted stronger-than-expected first-quarter results, joining other e-commerce giants that have had a similar lift as shoppers do more buying online during the pandemic.

Shopify, whose platform is used by more than one million merchants to sell products online and in stores, saw its market capitalization top $121.2-billion on Wednesday, passing RBC at $120.5-billion. The shares rose 6.9 per cent after the company posted US$470-million in revenue in the quarter ended March 31, up 47 per cent from the same period a year ago and well above analyst expectations.

Shopify surpasses RBC as Canada’s most valued stock. Should investors worry?

Whether Shopify can hold its position as Canada’s most valuable company is an open question, however, as some analysts have cautioned the stock may have gotten ahead of itself, particularly as a sharp increase in unemployment fosters uncertainty on longer-term prospects for consumer spending. The company, which has beat earnings expectations every quarter since going public in 2015, pulled its financial guidance a month ago and executives remained tight-lipped about forecasts Wednesday.

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“Our view is … it’s really hard to make money” when the stock is already trading at between 25 and 30 times expected 2021 revenues, Canaccord Genuity analyst David Hynes wrote earlier this week, after downgrading his rating on the stock to hold from buy.

Following the earning release on Wednesday, he wrote “this is an exceptional company; we’d simply like to buy the stock cheaper” than at current levels, which he said have already priced in a growth rate he believes will be hard to maintain.

Shopify’s exceptional growth in business volume did not mean soaring profits, with Shopify posting a net loss of US$31.4-million, or 27 U.S. cents a share in the first quarter, compared with a loss of US$24.2-million in the same quarter last year. Similar to many other large technology companies, Shopify has been less focused on generating bottom-line returns as it continues to invest in top-line growth.

Analysts focused on the company’s adjusted operating loss, which came in at US$7.3-million, better than expectations of an operating loss near US$30-million.

Shopify’s leaders cautioned Wednesday the company continues to face near-term uncertainty because of the widespread economic damage that will affect its merchant customers. But they said the business is well-suited to handle shifting retail buying and selling trends over the long term brought on by the crisis.

“We want to be very realistic, but one thing that’s absolutely true is that Shopify, the product, fits better into the world that’s going to be emergent after the crisis is over…than before,” said chief executive Tobi Lutke on a conference call with analysts.

The market had widely expected a pickup in the company’s key financial numbers, following similar reports from e-commerce bellwethers Amazon.com Inc. and eBay Inc., and Shopify partner ShipHero LLC.

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The U.S. Department of Commerce reported that the year-over-year pace of online retail sales accelerated to a 12-per-cent increase in April from 9 per cent in March. In mid-April, Shopify chief technology officer Jean-Michel Lemieux tweeted that Shopify ‘is “now handling Black Friday level traffic every day.”

However, chief operating officer Harley Finkelstein cautioned Wednesday: ”This shock to the economy was so sudden that patterns in March and April may not be predictive of the rest of the year.”

The shift to online shopping has helped lift Shopify’s stock this year by more than 70 per cent even before Wednesday’s gain. To put that increase in perspective, the amount by which Shopify’s value has increased since Dec. 31 exceeds Bank of Montreal’s total market valuation.

Shopify’s chief financial officer Amy Shapero said positive developments in the business “are far outweighing” the impact of challenges. Those challenges include a 71-per-cent drop in volumes through its point-of-sale channels between March 13 and April 24, and moves by an undisclosed number of customers of its higher-priced Shopify Plus platform to switch to cheaper options.

But the company, which has US$2.36-billion in cash and liquid securities and no debt, is well positioned to benefit regardless of the shape of the economic recovery, she said.

Mr. Finkelstein noted several new, large customers had set up Shopify stores since the pandemic to sell directly to consumers, including chocolate maker Lindt, food giant Kraft Heinz Co. and Canadian grocers Loblaw Cos. Ltd. and Empire Co. Ltd.'s Farm Boy. “This pandemic is forcing all kinds of merchants to rethink how they sell things, he said. “We think that will continue.”

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Shopify has also rolled out a number of initiatives to help merchants get through the crisis, including new features on its platform to facilitate curbside pickup and delivery options for physical retailers, offering a 90-day-free trial for new merchants, gift card offerings for merchants to sell to their customers and expanding the availability of cash advances to merchants. Mr. Lutke said Shopify was focusing on rapidly shipping versions of software that may be below the company’s normal minimum acceptable standards to get helpful tools into the hands of customers as quickly as possible, and later fixing them with upgrades.

Raymond James analyst Brian Peterson said in a note Shopify’s quarterly report “confirms the recent bullish narrative” that COVID-19 has helped improve its results.

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