Please ensure Javascript is enabled for purposes of website accessibility

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

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

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]

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.
SHOP
$355.54 (-1.23%) $-4.41
Microsoft Corporation Stock Quote
Microsoft Corporation
MSFT
$263.90 (0.92%) $2.40

*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
338%
 
S&P 500 Returns
119%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 05/17/2022.

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.