Many IPOs are launched by companies that operate in relative obscurity -- it is rare to hear a recognized name among upcoming issues. That is not the case with Shopify, a familiar if not exactly household name in the e-commerce industry.
The Canada-based company provides software and services primarily aimed at small and mid-sized businesses that want to set up online storefronts. So if you have purchased something from a mom-and-pop operation via the Internet, there is a good chance the Shopify platform enabled that purchase.
With its upcoming stock issue, investors will get a chance to buy into the company. Here is a brief look at the business ahead of the deal, which is expected to begin trading later this week.
Open for business
For a merchant of any size, there is almost no reason these days not to have an online storefront.
Shopify, which is nearly ten years old, got its start -- and still makes much of its money -- by offering a full set of software tools that allow users to create and maintain an online store. It offers these solutions on a subscription model.
According to the company, its platform is used by over 160,000 businesses in around 150 countries. The client list also includes larger firms like Tesla Motors, Google, Wikipedia, and the Los Angeles Lakers.
More storefronts mean more business, and Shopify revenue is rising fast. In both fiscal 2014 and 2013, the company managed to more than double its revenue on a year-over-year basis. In 2014, sales came in at $105 million.
Despite this rapid growth, operating in a popular and high-profile space has its disadvantages as well. Perhaps the biggest one for Shopify is that it is far from being the only player in this e-commerce space.
There is no shortage of companies willing to provide these services. GoDaddy, another recent tech IPO, launched its shopping tools services at the end of last year.
Ringing up losses
So being profitable is tough in this line of work. Net losses at Shopify have accelerated even faster than revenue growth, sinking from a bit over $1 million in 2012 to nearly $5 million in 2013 and $22 million in 2014.
Much of that has to do with its biggest expense -- sales and marketing -- which has been expanding at a similar rate to revenues, from $12 million in 2012 to nearly $46 million last year. The bulk of this rise stems from increased marketing spend on Google and social media.
Shopify is a recognized brand in the e-commerce world, and perhaps its reputation will attract investors to the IPO. However, like many young companies that operate largely online, it has not yet proven it can turn a consistent profit. Perhaps that will change once it is a publicly traded entity.
For those that believe in such a future, shares are expected to begin trading next week. The company is offering up 7.7 million shares in the range of $12 to $14. At the midpoint of that range, the deal will raise just over $100 million, excluding the over-allotment option, and Shopify will boast a total market capitalization of nearly $968 million.
The shares will trade on the New York Stock Exchange under the ticker symbol SHOP. The lead underwriters of the deal are Morgan Stanley, Credit Suisse, and Royal Bank of Canada Capital Markets.
Eric Volkman has no position in any stocks mentioned. The Motley Fool recommends Apple, Google (A shares), Google (C shares), and Tesla Motors. The Motley Fool owns shares of Apple, Google (A shares), Google (C shares), and Tesla Motors. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.