Please ensure Javascript is enabled for purposes of website accessibility

Why Shopify Stock Dropped Today

By Steve Symington - Dec 14, 2018 at 5:03PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The e-commerce platform specialist just priced another secondary offering today. Here's what investors need to know.

What happened

Shares of Shopify (SHOP -10.57%) plunged 12.9% today after the e-commerce platform leader announced a dilutive secondary stock offering.

More specifically, this morning Shopify priced an offering of 2.6 million Class A shares of stock -- or about 2.8% of Shopify's current float -- at $154 per share, or a roughly 4.4% discount from yesterday's closing price of just over $161.

Stock market data with a yellow arrow indicating losses


So what

Shopify expects to bring in gross proceeds from the offering of roughly $400.4 million, before costs and underwriting discounts, and says it will use the cash to "strengthen its balance sheet, providing flexibility to fund its growth strategies." In the meantime, Shopify will either hold the cash or invest the proceeds in short-term interest-bearing instruments.

Investors should keep in mind that while Shopify is indeed growing quickly, it has yet to achieve sustained profitability. Still, raising funds could seem like a curious move considering that just in February, Shopify finished a similar 4.8-million-share offering for proceeds of almost $660 million. And the company ended last quarter with nearly $1.6 billion in cash, cash equivalents, and marketable securities. 

Now what

While this latest offering will modestly increase the size of Shopify's float, it's also hard to blame management for the timing considering shares had climbed more than 50% year to date leading into yesterday's close. As long as Shopify can prove it's capable of effectively using its cash hoard to continue investing in its future, driving top-line growth and taking market share over the long term, this offering should ultimately be a nonissue for patient shareholders.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Shopify Inc. Stock Quote
Shopify Inc.
$359.95 (-10.57%) $-42.53

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning service.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 05/16/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.