Home Short payment terms Down 81% from its peak, could Shopify stock soar after its stock split?

Down 81% from its peak, could Shopify stock soar after its stock split?


Shopify (STORE -6.49%) received approval for a 10-for-1 stock split at its annual meeting in early June. Shareholders also voted to issue CEO Tobias Lütke a “founder’s” share, a move that effectively gives him 40% of the voting rights as long as he leads the company. The stock split will take effect on June 28 and the shares will begin trading on a split-adjusted basis on June 29.

On that day, Shopify shareholders will receive nine additional shares for each share they already own. But the value of each share will be one-tenth of its value before the split, which means that a shareholder’s stake in the company does not change. Even so, a lower share price makes the stock accessible to more investors, which sometimes leads to a post-split pop. With Shopify trading 81% off its peak, a rebound would be a welcome relief.

Should shareholders bet on this result? Let’s dive into it.

Look in the Shopify Crystal Ball

Shopify’s commerce software powers approximately 2.1 million businesses worldwide. Unfortunately, many retailers have seen an inflation-fueled decline in demand, with consumer spending shifting towards basic necessities like food and gasoline, and away from experiences like entertainment and trips.

Shopify shareholders witnessed this trend when the company reported somewhat disappointing first quarter financial results. Revenue rose just 22% to $1.2 billion and free cash flow was $70 million. But the headwinds could intensify in the coming quarters.

Inflation hit a new 40-year high in May, according to the US Department of Labor, meaning consumer spending will likely remain under pressure for the foreseeable future. To combat rising prices, the Federal Reserve just announced its first 75 basis point rate hike since 1994. While this should ultimately help cool the overheated economy, it will do so by increasing the cost to borrow money, which will further dampen consumer spending. .

Given these headwinds, there’s no guarantee Shopify shareholders will see a rebound post-split. Also, if the price spikes, the gains are likely to be short-lived. A stock split has no direct impact on the company’s revenue or cash flow, which means splits are unlikely to have a lasting impact on valuation. For this reason, stock splits (and other short-term catalysts) make bad investment thesis. That being said, it still seems like a good time for patient investors to buy some Shopify stock.

Invest in the stock, not the split

Shopify’s software enables merchants to manage sales across physical and digital channels, including direct-to-consumer (D2C) websites, mobile apps, and online marketplaces. The company also provides value-added services such as payment processing, financing and marketing tools. In short, Shopify offers everything a merchant needs to start, run, and grow a D2C business. This differentiates the company from market operators like Amazon.

D2C models give brands more control over the shopper experience, making it easier to build lasting relationships with customers. In fact, 64% of consumers will regularly buy directly from brands this year, up 15 percentage points from 2019, according to eMarketer. This trend has been a major tailwind for Shopify. Its market share in U.S. e-commerce sales reached 10.3% last year, up from 5.9% in 2019, making Shopify the second-largest player in the industry (behind Amazon).

To that end, despite disappointing first quarter results, the company still delivered strong results over a longer time horizon.


Q1 2019

Q1 2022

To change

Turnover (TTM)

$1.2 billion

$4.8 billion


Free Cash Flow (FTF)

($6.1 million)

$253.7 million

N / A

Data source: YCharts. TTM = last 12 months. CAGR = compound annual growth rate.

To be clear, Shopify may struggle in the current economic environment. Revenue growth could slow and cash flow could continue to decline. Fortunately, the company has more than $7 billion in cash and short-term investments on its balance sheet, allowing it to weather a downturn.

More importantly, macroeconomic turmoil does not alter Shopify’s long-term market opportunities or its value proposition to merchants. E-commerce is taking market share from traditional retail and D2C business models are resonating with businesses and consumers. Shopify helps merchants tap into both of these trends.

In fact, Shopify is the leading e-commerce software provider in terms of market presence and merchant satisfaction, according to the Spring 2022 G2 Grid report. And with stocks trading at 8.6 times sales, near a five-year low, now seems like a great time to buy some stocks. Remember that the stock price can always fall further, so don’t bet on a rebound caused by the stock split; instead, consider building a position through cost averaging.