This week Shopify announced plans to split its stock 10 for 1 to give its founder, Tobi Lutke, more voting power. It will also allow more retail investors the chance to pick up shares at a less costly $60/share instead of $600/share.
The question I have is, “Should I buy more shares of Shopify?”
Whenever a company splits its stock, CNBC, Investopedia, The Motley Fool and other financial news organizations trot out the pizza analogy. Imagine a company’s outstanding shares as a pizza. It makes no difference (to the value of the company) whether that pizza is split into 8 slices or 480 slices. The amount of pizza, and the value of that pizza, is the exact same. You’re just slicing it up differently.
While this is certainly true, stock splits have a tendency to bode well for the companies performing them. According to Money Magazine, “Since 1980, S&P 500 companies announcing stock splits have returned an average of 25.4% over the following 12 months. In comparison, the S&P 500’s average return was only 9.1% over the same period.”
It also helps that historically, it’s usually the most successful companies that announce splits. Apple. Tesla. Alphabet. Amazon. Disney. All have announced stick splits and all have ended up helping investors profit handsomely over the years.
But this is a little different. We’re not exactly in a boom time. With the war raging in Europe, inflation raging at home, the FED raising rates, mid-term elections fast approaching and most economists are predicting a recession in 2023, the market could be in for a rough ride for the next 12 months.
Here’s the thing, you don’t buy shares of a company because of a stock split. You buy shares of the company because you believe in the company’s long term prospects. The stock split is just the icing on the cake. So maybe the better question to ask is, “Do I believe in Shopify’s long term prospects?”
A recent Motley Fool Deep Dive on the company pointed out that as of 2020 Shopify was #2 in share of U.S retail e-commerce sales. Here’s the list:
SHARE OF U.S. RETAIL E-COMMERCE SALES
AMAZON 39%
SHOPIFY 8.6%
WALMART 5.8%
eBAY 4.9%
APPLE 3.5%
Think about that. Of all the companies in the United States trying to sell you something online, Shopify is the second most prolific only trailing Amazon. That’s not a bad place to be. In fact, that’s an amazing place to be. That’s like being Magic to the Lakers’ Kareem or Klay to an era re-defining Steph. There’s nothing wrong with being the second best e-commerce platform in the United States behind Amazon with room to grow in Latin America, Europe and Asia.
From a trust-your-gut perspective, it feels like the stock will split, the company will continue to grow and expand and eventually, whether it takes 3, 5 or 10 years, the stock will hit $200+/share rewarding owners with another 3-5 bagger from here on out.
I bought at $77, $86, $605, and I’m buying one more time on Monday morning. And then I’m done with this whole Shopify thing. I hope.
