Shopify plans stock split that's bound to tap retail frenzy

[TORONTO] Canada's Shopify just became the latest tech giant to announce plans to split its stock in a bid to bring a higher number of loyal retail investors to its shareholder base.

Shopify said on Monday (Apr 11) it plans a 10-for-1 stock split for its common stock pending shareholder approval on a June 7 meeting. The proposed share split "will make ownership more accessible to all investors", the company said in a statement.

Recent split proposals from Alphabet, Amazon.com and Tesla triggered sharp rallies on the stocks as retail traders - who tend to favour stocks with high liquidity and lower price tags - jumped in.

"The reason that Amazon, Apple, Tesla and now Shopify are doing stock splits is to make their shares more attractive to retail investors," DA Davidson & Co analyst Tom Forte said in an interview. "When you look at Amazon's actions, one of the first things they did to stimulate the share price was to announce both a repurchase plan and a stock split. We're seeing instances where companies' stocks are under pressure and they are announcing stock splits."

But Shopify's rally was more muted after seesawing in earlier trading. The shares, which have lost about 55 per cent of their value this year, closed higher by 2.9 per cent in Toronto, pulling up the S&P/TSX Information Technology Index by 0.6 per cent while the S&P 500 Information Technology Index slumped 2.6 per cent, the most in more than a month. But the stock ranked outside of the top 10 most traded on Fidelity's platform and its ticker was largely absent from platforms like Reddit's WallStreetBets or Stocktwits.

In addition to the split, Shopify announced it will give chief executive officer Tobi Lutke a special "founder share" that will preserve his voting power as long as he's at the company. Under the plan, Lutke, his family and his affiliates would together retain 40 per cent of the votes at the company, even as their ownership stake changes.

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For some, this shows an attempt by senior management to preserved Lutke's position as the company embarks in longer-term initiatives, including the development of Shopify's fulfilment network after it cancelled contracts with several warehouse and fulfilment partners in January.

"The changes are designed to prevent any knee jerk reactions, given that the execution of these initiatives do require some time," said Richard Tse, an analyst at National Bank of Canada. "If it doesn't execute in the short term and investors get impatient, who knows what they would suggest the board look at doing with management."

Shopify soared above C$250 billion (S$270 billion) in market value during the pandemic as online selling took off, but it has given back most of those gains.

The shares are down this year amid a selloff in richly valued technology stocks - costing Lutke, 41, about US$6.3 billion in personal wealth. He's still one of the richest Canadians, with a net worth of US$5.5 billion, according to the Bloomberg Billionaires Index.

Analysts are still largely bullish on the stock, with 27 buys, 18 holds and 2 sell ratings. Tse at National Bank maintains his outperform rating with a US$1,500 price target.

Morgan Stanley is serving as Shopify's financial adviser on the proposed changes and Skadden, Arps, Slate, Meagher & Flom and Stikeman Elliott as legal counsel, according to the company's statement. BLOOMBERG