Another Share offering by SHOP. I love this company and it’s stock but this is getting tedious. With about a billion in cash already I wonder why they need this. Maybe an acquisition in the works? Needs to be some reason this time.
https://finance.yahoo.com/news/shopify-launches-offering-cla…
Another $650 million! If it were an acquisition the share price is strong enough to use shares to pay. SHOP had no use planned for its $500 million raise last year, and I doubt it has any use planned this time either other than the share price is still high and they can pocket the cash.
Tinker
Should I be concerned about this? I don’t understand how much of an impact this has on the share price potential
With about a billion in cash already I wonder why they need this.
I complained about this less than 2 weeks ago: http://discussion.fool.com/i39m-not-selling-any-shares-because-i…
Turns out Tom Engle wrote about this on the TMF SA SHOP board: http://discussion.fool.com/1081/hi-retirementdough-thankful-as-a… (subscription required)
In it, he said he didn’t see a need for SHOP to do another offering this year. But, here we are…
In it, he said he didn’t see a need for SHOP to do another offering this year.
I just don’t want to take what Tom E said out of context, so thought I’d copy this part from his post.
As long as the price of the stock remains high and/or goes higher, Shopify is highly motivated to continue to issue shares.
Acknowledgment of how seductive the idea of share offerings are right now.
While nobody wants to see dilution, especially if it really isn’t needed in the foreseeable future, Shopify doesn’t stand uncontested. Even if M&A isn’t on the horizon today, you never know for tomorrow. This cash could be the seed money for future purchases to enhance their offerings and fend off competitors.
That is a long term view, but one worth considering.
A.J.
With no real purpose in mind for the cash, that they don’t need for operations, the only possible explanation is that SHOP believes the shares are overpriced, and with overpriced shares the best thing to do is to raise cash, and then buy back the shares later at a lower price.
Because SHOP believes this does not mean it is true, but it certainly is food for thought.
Companies buy back shares when they think the shares are undervalued, and if they have no need for the money, they only sell shares if they think the shares are overvalued.
Is what it is. To date, management’s opinion aside, the market has not treated the shares as overvalued, only the company has.
Tinker
With no real purpose in mind for the cash, that they don’t need for operations, the only possible explanation is that SHOP believes the shares are overpriced, and with overpriced shares the best thing to do is to raise cash, and then buy back the shares later at a lower price.
I disagree that this is the only explanation. I see it more like an insurance policy. SHOP doesn’t want to limit itself should there be future credit crunches, future temporary market selloffs, or future unforeseen disruptions to their business (for whatever reason). SHOP wants to control its own destiny no matter what and to do that they need cash in case they want to spend to grow faster, buy some interesting technology, etc. Think of it like ef you money.
Chris
Think of it like ef you money.
Which was raised by reducing your ownership. Hopefully, they will outline what they intend to do with so much cash. One issue of having too much cash is you do not always use it productively. It is not always bad to have constraints to make you more careful in decision making.
I’m long and do think it is a good time for companies to raise funds if they think the share price has shot up, but usually if they see a need for those funds like biotech stocks.
I’m long and do think it is a good time for companies to raise funds if they think the share price has shot up, but usually if they see a need for those funds like biotech stocks.
You think Shopify should invest in biotech stocks?
Interesting!
Ant
You think Shopify should invest in biotech stocks?
Interesting!
Ant
I have not started drinking quite yet, we can hold that discussion for later.
Ok see you at the bar in one hour, Martinis at the ready!
Ant
I bought SHOP in late March last year at around $70. Before the announcement, I had my within-a-year double in the stock. But the share price went down after hours after the announcement, so my double is lost. For the time being. I’ve been thinking of selling and buying back at a cheaper price, but I already sold half of what I had in November, and it’s gone up since then. Because of the price increase, it’s now back to 1% of my holdings.
If I had been crazy enough to put 100% into this stock, I’d be quite a bit wealthier now and would have spent a lot less time fiddling with stocks, though I’ve done pretty well in the last couple of years.
So here is the explaination from Shop:
“Net proceeds from the Offering will be utilised to strengthen company’s balance sheet, providing flexibility to fund its growth strategies and the remaining net proceeds company intends to invest in short-term, investment-grade, interest-bearing instruments or hold them as cash.”
As expected, just a standard explanation.
Almost a Billion in cash already, Cash flow positive even after lending a net $38M in cash advances to customers.
It feels like they are just being greedy, unless they plan to substantially increase loans to customers thru Shopify capital.
Jimbo
I trimmed my Shopify position this morning…from a bit more than 6% to now being a bit less than 4%.
Reading Tom Engle’s (TMF1000) page post on Shopify and pointing out their history of dilution to this point was a factor in my thinking, and this secondary re-inforced that. I now have half the number of shares I initially bought in August 2016 at $40.75/share.
By diluting its shareholders twice, management is not sending the right message to investors in my humble opinion. it’s like saying: “Our stock is overvalued guys”.
With no real purpose in mind for the cash, that they don’t need for operations, the only possible explanation is that SHOP believes the shares are overpriced, and with overpriced shares the best thing to do is to raise cash, and then buy back the shares later at a lower price.
with due respect to saul, for 99.9% of the companies on the planet valuation eventually comes down to cash flow and earnings, and if such metrics don’t apply to SHOP, what better time to augment the balance sheet than when the shares are not valued on anything other than revenue? If anything, if you own SHOP here, and you want to be a long-term owner, perhaps you should applaud management’s skill in recognizing that they can create an incredible - just incredible - balance sheet WITHOUT having to do it via the hard work of producing it via the cash flow statement. In theory, this will result in even MORE R&D to develop a long-term edge without the constraints of worrying about traditional profitability!
I think the move is brilliant - and it also shows how having public shares, for all the headaches, can be a huge advantage over private companies. Offerings are, in essence, no strings attached money. I wish more companies did this. I think SHOP is brilliant for doing this.
just 2c
I think the move is brilliant - and it also shows how having public shares, for all the headaches, can be a huge advantage over private companies. Offerings are, in essence, no strings attached money. I wish more companies did this. I think SHOP is brilliant for doing this.
Im with ya. Usually the best time to raise cheap cash is… whenever you can, whether you need it now or not.
Best,
Matt
SHOP uses ‘utilise’ instead of ‘use’; AYX uses ‘enhance’ instead of ‘improve’. How badly companies want to impress, and fail! Similarly, I do not know of one job applicant who is not ‘passionate’ (yawn, you and all the others).
Oh well, now back to the day job.
Strelna that’s the gritty Brit in you!
So i guess this 7% drop is due to dilution?