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What Is Shopify Doing With Its $6 Billion in Cash?

By Brian Withers and Toby Bordelon - Apr 21, 2021 at 7:32AM

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It's all about investing in growth.

Shopify (SHOP 8.25%) certainly benefited from coronavirus tailwinds as more consumers shopped online for everyday goods. With the stock having doubled in the past 12 months, management took the opportunity to execute a massive capital raise. On a Fool Live episode recorded on March 31, Fool contributors Toby Bordelon and Brian Withers discuss the details of the cash grab and what this e-commerce software specialist plans to do with its $6 billion on the balance sheet.

Toby Bordelon: Let's look at Shopify going forward here. Shopify, big news from last month is they completed a $1.5 billion secondary stock offering. That actually might not be that big of a news when you think about it because they did the same thing last year. They actually did two offerings last year. Q3, they did between, I think, two of their offerings, they raised about $3.5 billion in shares and new notes they issued, so that's $5 billion in debt and equity they've issued over the past 12 months.

Ask yourself why. Why are they doing that? They're not in a bad financial position, three billion in revenue, which is an 80% increase over 2019, $1.5 billion in gross profit from 2020, operating cash flow, positive in 2020, which is up from a loss, operating income was $90 million versus a loss in 2019. This is about gross lending, I think, and opportunistic. Share price is at a high and they're using that to raise some money. They did pump most of the money they raised last year right back into business, so I'm hoping they're going to do the same with the one and a half billion they've just raised.

But it does make you wonder. I mean, with all this debt and equity raise, you wonder about dilution. You wonder whether the stock is overvalued and that's why they are trying to do this now. That's a little bit of a concern. I think that's something to watch.

We'll get some Q1 earnings later as well. Just wanted to point out they have a virtual annual meeting this year, which I think a lot of companies will be doing, theirs is set for May 26th, so if you're a shareholder and you've always wanted to go to Shopify's annual meeting, you can actually do that in the comfort of your home this year. Check that out and check that out generally if you can get your hands on a virtual meeting seat for companies you own this year.

Watch this debt issuance going forward in the next year, this may not be their last in calendar year 2021. Keep an eye on that and watch what they spend their money on. If they use it to grow the business, great. If you start seeing not as great results from all this spending, then maybe start to be concerned a little bit. 

Brian Withers: Yeah, they got over $6 billion in cash and marketable securities on the balance sheet. I think part of that is when you're competing against Amazon, having a deep pocket with a lot of cash to invest, I think is really important. In the last earnings call, CFO Amy Shapero, who is a rockstar, by the way, absolute rockstar. She's only the second CFO of the company, and I'm just super impressed. She said that there are three areas of incremental investment for the coming year: Shopify Fulfillment Network, the shop app, and international.

The Shop app, if you haven't heard about it, is a consumer-facing app that helps reduce the friction for shoppers to [connect to] Shopify's merchants. The fulfillment network is actually really just getting started. They've just come out of the product-market fit phase and moving into the ramping up phase. International, believe it or not, is still only 26% of the revenue outside of the U.S. and Canada. I think there's huge opportunities for all three of these areas, and I'm really excited that Shopify is setting aside money for it.

Bordelon: If I had to pick one of those that I was most excited about, I'd probably go international expansion, that's huge. That has huge potential. There are obviously going to be some growing pains to that probably, when they start dealing with other cultures and other countries. You can't deny the potential there. They could become a true global powerhouse. That's something to look forward to.

Withers: What's cool is they release the number of languages that they are admin services are available in, and right now it's only 20. Certainly hitting the main ones, but there's plenty of opportunity to get local as we've seen some of these companies like Apple and Netflix do. Really excited about that.

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