The company issued 2,185,000 Class A shares, which were sold by Shopify for proceeds of $693,737,500. Shopify expects to use this capital to strengthen its balance sheet and fund further growth strategies in the future.
Any time a company issues shares, its stock price is bound to take a hit and Shopify’s has done just that. The stock has fallen from highs of $513 to to $438 this morning in less than a month.
What does this mean for the company moving forward?
Shopify is anything but cheap right now. The Canadian stock is trading at over 22 times book value and nearly 40 times sales. This is a high-flying growth stock that will need to continually put up strong quarterly results to justify its price.
With that being said, short term volatility is to be expected when a company issues shares, as the market will need some time to digest them. In the end, if Shopify continues to put forward strong results, we can expect its price to return to where it was prior to this near 20% drop over the last month.
Shopify is led by an excellent management team, and has shown in the past that it is capable of putting capital to good use to fund growth. If this is the case again, investors will soon forget about the recent dilution.
Acquisition of 6 River Systems is evidence
Shopify is putting its customers first, and its acquisition of 6 River Systems in early September is further indication of this. 6 River Systems is a leading provider of collaborative warehouse fulfillment solutions, and should help Shopify increase the speed and reliability of its warehouse operations via quicker inventory replenishment, picking, sorting and packing.
The total cost of the acquisition was around $450 million, which was made up of 60% cash and 40% in Shopify Class A shares.
Expansion of its U.S. CBD market
The United States CBD market is expected to reach $20 billion by 2024, and Shopify is taking a proactive approach by developing online tools in more than 40 states to help merchants of cannabidiol get their products to customers.
Shopify already has a strong presence in the recreational sale of Cannabis, working with major cannabis companies like Canopy Growth Corporation (TSX:WEED) and Aurora Cannabis (TSX:ACB), and is in a strong position to benefit even further as the United States moves towards legalization.