Will New Tools, Facebook Deal Send Shopify Stock Higher?

Shopify Inc. (NYSE: SHOP) posted another record-high close Thursday after unveiling new features for merchants, including a business account that offers a more flexible alternative to traditional banking.

The company showcased its new offerings at its online Reunite conference. The virtual event held Thursday replaced Shopify’s annual Unite meeting in Toronto for partners and developers. The live conference was canceled because of the COVID-19 pandemic.

Shopify’s e-commerce platform offers retailers a suite of services, including payments, marketing, shipping and customer engagement tools, that are designed to simplify online activity for small merchants.

Fighting for Survival of Small and Mid-Sized Merchants

Shopify founder and chief executive Tobi Lütke acknowledged that the coronavirus crisis had everyone living in “unprecedented times.”

“This is going to be one of the most challenging and most crazy chapters in our lives,” Lütke said. “Shopify exists to make commerce better for everyone. That’s our company mission. Right now we’re dedicating ourselves to try to get as many SMBs (small and mid-sized business) to survive as possible.”

The new business account, called Shopify Balance, will allow merchants to track bills and pay expenses. It includes a debit card that can be used to access sales revenue at automated teller machines, the Ottawa-based company said. Shopify is not seeking a banking license but will work with “external partners” on the service.

Shopify’s chief operating officer, Harley Finkelstein, said that most banking services are designed for large, established businesses, not independent business owners.

The company found that two in five merchants use their personal bank accounts and cards for business purposes. That means they combine their personal and business finances and cannot easily monitor the financial health of the business.

Finkelstein said Shopify Balance would be launched later his year.

Heady Days for Shopify’s Share Price

Wall Street certainly appeared to like what it was hearing. Shopify shares established a record-high closing price of $802.35 on Thursday. The share price has more than tripled since it hit its 52-week low of $262.17 a year ago.

In May alone, Shopify’s stock price has soared about 27% and the company, which went public in May 2015, is now the largest in Canada after moving ahead of the Royal Bank of Canada in market value. Shopify has a market capitalization of about $95.1 billion.

Shopify beat first-quarter earnings expectations earlier this month when it reported revenue of $470 million, a 47% increase over its revenue of $320.5 million for the first quarter of 2019. Last year’s figure was a 50% increase over 2018’s first-quarter revenue.

The company had earnings per share of $0.19 cents, compared with analysts’ estimates of a loss of $0.18 per share.

The consensus among analysts covering the stock is that Shopify is a Hold. The average price target is $733.00, with a high estimate of $860.00 and a low of $360.00.

But anyone who got in on Shopify’s IPO stock in 2015 and held the shares is certainly sitting pretty. Five years ago, Shopify priced its IPO at $17 per share. Shopify had initially targeted the $12 to $14 range but robust demand landed Shopify IPO shares at $17.

The company raised $131 million by selling 7.7 million shares. An investment of $1,000 in the Shopify IPO would be worth today more than $45,000. Of course, many investors did very well over the same time period. The SPDR S&P 500 (NYSE: SPY) total return over that stretch is 53.8%.

New Partnership With Facebook

Shopify has stayed very active during the COVID-19 lockdown. “It is an extremely trying time,” Lütke said Thursday. “And only the most adaptable will make it. Entrepreneurs are the kind of people who make the most out of what they’ve got.”

Earlier this week Shopify and Facebook Inc. (NASDAQ: FB) announced a new partnership intended to help businesses create Facebook Shops, which “make it easy for businesses to set up a single online store for customers to access on both Facebook and Instagram,” a news release said.

Facebook chief executive Mark Zuckerberg said he had been personally involved with the development of Facebook Shops, which will be free. The new feature is rolling out as Facebook is making efforts to support small businesses in the coronavirus pandemic.

“Our business model here is ads, so rather than charge businesses for Shops, we know that if Shops are valuable for businesses they’re going to in general want to bid more for ads,” Zuckerberg said. “We’ll eventually make money that way.”