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Shopify's Latest Savvy Move Could Mean Big Things for Its Future

By Brian Withers and Matthew Frankel, CFP® - Mar 13, 2021 at 7:26AM

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It's something that Microsoft founder Bill Gates would love.

Bill Gates, former CEO and founder of Microsoft, loved having cash on the balance sheet. Gates always felt that having a large cash hoard would protect the company from an extended recession or the failure of a specific product. E-commerce operating platform Shopify (SHOP -1.23%) is taking a page out of the Gates management handbook. On a Motley Fool Live episode recorded on March 3, Fool contributors Brian Withers and Matt Frankel discuss the company's most recent quarter and what it's doing to add to its massive pile of cash.

Brian Withers: [laughs] Well, I'll kick it off with Shopify. They did another, another capital raise, raising $1.5 billion, and now the cash balance on their balance sheet is $8 billion dollars. The reason they gave was, "to strengthen balance sheet provide flexibility for funding its growth strategy," not surprising.

It's great that they're able to do this with the strength that the stock has seen over the last few years. CFO Amy Shapero shared some of their key areas for growth, incremental growth investment in 2021, and it's about the Shopify Fulfillment Network, the Shop App, and international expansion. Localization such as pick-up locations in France and whatnot.

The Shopify Fulfillment Network makes it really easy for merchants to link with Shopify's platform and get their fulfillment done at a one-stop shop. So they don't have to contract it out or run it out of their garage. The Shop App is helping merchants connect with all of the members. There's more than 100 million registered users now on the Shop App. If you buy anything from any Shopify vendor, you're registered in there and it saves and it allows you to do quick payment and track all your shipments from Shopify merchants.

They released earnings few weeks back. They updated their merchant number. There is a couple of numbers that they updated, which I was really excited about because it was the end of their fiscal year. They updated the number of merchants, it's 1.7 million. Of those, 10,000 are Shopify Plus merchants who pay the maximum subscription fee starting at $2,000 a month. The Shopify shipping solutions is up 52 percent in Q4, so the merchants using their shipping network, Fulfillment Network, Shipping Solutions is more than half now, which is tremendous.

I can't believe I'm saying some of this about stocks that I own, full-year profit and $2.59 earnings per share. That's even hard for me to say, earnings per share, $2.59, fantastic.

They updated their total addressable market. It went from $70-something billion to $153 billion. It varied on two things; the number of global businesses went up and the amount that they're capturing per merchant went up from $1,600 to over $2,200 in the year.

They're not providing [forward revenue] guidance, they're providing "ranges with informational and directional indicators." They're really not giving specific guidance. Here's what they said about 2021, "We expect that we'll continue to grow revenue rapidly in 2021, albeit at a lower rate than 2020." No surprise there, they've doubled over the last three quarters, each quarter their revenue. "With regard to seasonality, we expect that Q1 will likely continue the smallest share of the full-year revenue, and Q4 largest." Back to the play that they were before.

What I'm watching is the grow-out of this fulfillment network, the international [space] which they are really just starting to tap and then the continued penetration of Shopify Plus. You own Shop, right, Matt?

Matthew Frankel: I don't. It's my biggest regret of the pandemic. I literally had the order typed in in March, I didn't hit the button.

Two quick points I want to make before we move on to another one. First of all, you mentioned Shopify raised about $1.5 billion. I love all these tech companies that have been taken advantage of their high [stock] price to raise money. I don't know if you mentioned, but Shopify's often considerably from its high, like most tech stocks are. Shopify still have 150% over the past year, so I don't feel that bad for Shopify investors.

But at that elevated level, I'm really happy to see they are raising some money. A lot of tech companies were doing that this past quarter or at the end of 2020. I've said a few times that a lot of these companies would have been insane to not raise at these valuations. That's a big competitive advantage to be able to raise capital at such a low cost.

Withers: Yeah, $8 billion on the balance sheet is just absolutely amazing. It's getting to be Microsoft level. [laughs]

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Shopify Inc. Stock Quote
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