SHOP announce a filing 2.5B shelf offering (5.5M Class A subordinate voting shares). So some added pressure on the company should be expected.
Rob
We do they need to raise another $500+M?
Added at little SHOP at 81.75.
Rob
Their accountants are probably telling them, “Quick, people are paying $90+ US for these things right now - sell as many as you can!!!”
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Maybe the best time to raise cash is when you least need to and the shares are high
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Added at little SHOP at 81.75.
Rob
Might have been some excellent timing. Back up over $88.00/share already here at 10:55 am.
“Quick, people are paying $90+ US for these things right now - sell as many as you can!!!”
My question was rhetorical. They already have almost $400M in cash and marketable securities (as of 3/31/17). Their cash consumption from operations for the quarter was positive and with the growth in revenue that they are achieving the cashflow from operations should continue to increase each quarter. Under these circumstances, I don’t think they need to dilute shareholders by raising more cash. Maybe they are planning for a large acquisition???
Chris
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Maybe they are planning for a large acquisition???
Amazon?
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From Investopedia:
DEFINITION of ‘Shelf Offering’
A Securities and Exchange Commission (SEC) provision that allows an issuer to register a new issue security without selling the entire issue at once.
BREAKING DOWN ‘Shelf Offering’
The issuer can sell portions of the issue over a two-year period without re-registering the security or incurring penalties.
This shelf offering doesn’t mean an immediate offering. It gives them flexibility for the 2 year window.
Rob
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My question was rhetorical.
I think I knew that.
However, if you think that the price of your company’s shares is WAY ahead of itself, why not go to market and build up a war chest - even if you don’t need it.
If the price ever dropped significantly (hahaha - as if), you could authorize a share buyback and turn a tidy profit.
Capitalism at its finest!!
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It was at my 1st add level so I triggered it. SHOP could easily go lower in a general market swoon so I didn’t go to a full position yet.
Rob
In the 73 kerflufel stocks dropped 40%. History never repeats its self but it does rhyme.
Bruce
In the 98 kerflufel S&P dropped 20% and regained it in a few months. History never repeats itself but it does rhyme.
Bruce
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There is a big difference between filing for a shelf, and actually using the shelf. It is done all the time.
This said, SHOP has no need for the cash other than to make acquisitions. But I did receive my SHOP shareholder meeting packet. Have not looked at the agenda.
Tinker
Hello,
When a company signs an agreement with book runners and managers, we are past the “shelf filing” stage and into the “shelf utilization” stage.
This is a time when investors should be comfortable that a CEO has such a large stock position.
Those who bemoan the “dilution” should recognize that Tobi is being diluted more than the holder of a few thousand shares. Not sure who is being diluted anyway, I paid $43 for my stake and the new purchasers of the shelf will pay double that. Their purchase will increase the book value of all the other shareholders.
I agree, Tinker, that the most likely reason for the shelf is an acquisition. It will be interesting to see who Tobi thinks will accelerate the dominance of the platform.
Best regards,
Mike
1 Like
If they float additional shares to raise extra cash, it is most likely net neutral if they don’t need the cash to fund operations. I more worry if that cash is needed for near-term operational but this doesn’t seem to be the case at all.
Money from the sale will be used to boost network infrastructure, bolster marketing and fund potential future acquisitions, Shopify’s head of investor relations, Katie Keita, said in an emailed reply.
“We’re growing quite rapidly,” Keita said. “This is a way to ensure we will be able to strengthen our balance sheet to fund various growth initiatives.”
https://www.bloomberg.com/news/articles/2017-05-18/shopify-s…
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It is cynical (and self-defeating as a shareholder) to say so, but yeah, this is opportunistic. Best to raise when the stock is hot rather than when it is not.
The question becomes on of calculations. I’ve done some myself. If the shares were cut in half, say back down to $4 billion in market cap, the shares would be remarkably “cheap”, assuming the company continues to perform to expectations. So I doubt we go that low again unless there is some real world catastrophe. And as we have seen even 9/11 wasn’t enough to make a world catastrophe stick in the stock market. A blow, down, but up before the count was out.
So I deduce that if the share price were to fall for some reason, assuming the company continues to perform up to expectations. The price would fall to about $6 billion market cap (between $8 and $4 billion). At that price, using my same methodology of valuation (that won’t satisfy traditionalists, but I am not a traditionalist, and traditionalists don’t own the stocks I own, and I have a long history sufficient so that I can say traditionalism is not the only way to do things), I would be buying SHOP in hordes (again, assuming SHOP is the same company at the time, and not broken, or something materially changed (like it did with Twilio)).
So that would be a 25% haircut, and at that price I’d be a heavy buyer. Given I am still in the short-term capital gain rate, my taxes would be more expensive than the expected downside of the stock, and I’d be a buyer anyways. So even if I was smart enough, selling now, and waiting to buy back in case of market crash, after taxes, I wouldn’t gain much I don’t think.
However, if you are in a different tax situation, your answer may differ. But as much as people say SHOP is in a bubble, or such, I really don’t see it (assuming of course, again SHOP continues to perform to expectations). But that is the same with any high growth stock. They need to be the same company going forward as their valuations require a strong CAP and a strong TAM, and if those dissipate, so does the valuation premium, and thus the share price.
I don’t expect SHOP to be a different company going forward (although growth rates are always risky), so I figure SHOP could fall 25% in a market crash unrelated to an utter world catastrophe, and at that price it would be a buy in hordes. Currently, yes you can still buy, but it does require looking out to end of year 2018 results. Such is growth stocks and long-term investing in growth stocks.
Tinker
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$500 million!!! That is enormous in the scheme of things for a copay who is already cash flush. Either SHOP is buying something, or planning to make acquisitions, or some sort of Amazonian like infrastructure build outs,or it thinks it is horribly overvalued and will never again get such a chance to print so much money for itself so cheaply.
That is an enormous cash raise for a company like this. This is anecdotal, from my experience stretching over about 20 years making such observations, but yeah, I cannot even recall a biotech doing $500 million with a marketcap less than $10 billion. And biotechs are by definition burners of other people’s monies!
Tha is not descriptive of SHOP. So SHOP has to have some real plans for the money, if we are optimistic, or the shares are so overvalued that raising money now is the best use of the companies resources to benefit shareholders now. Take your pick.
Tinker
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The Registrant had 77,030,952 Class A Subordinate Voting Shares and 12,374,528 Class B Multiple Voting Shares issued and outstanding as of December 31, 2016.
That’s from their annual filing. Makes about 90 million shares. Selling 6.3 million is about a 7% dilution.
$500 million!!! That is enormous in the scheme of things for a company that is already cash flush. Either SHOP is buying something, or planning to make acquisitions, or some sort of Amazonian like infrastructure build outs, or it thinks it is horribly overvalued and will never again get such a chance to print so much money for itself so cheaply. That is an enormous cash raise for a company like this… I cannot even recall a biotech doing $500 million with a marketcap less than $10 billion. And biotechs are by definition burners of other people’s monies!
Hi Tinker, For a company growing revenue at 75% per year, making up a 7% dilution (if you are figuring a P/S ratio per share), will take them all of about one month! Big deal!!! And it’s not even a “dilution” like giving away stock options. In this case they are getting $500 million for it. And even after Black Wednesday, they apparently didn’t have any trouble selling the whole package at $91, just a 4% discount from the all-time high close. Putting all that together, it seems very, very positive to me.
Saul
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