Shopify Gains in Premarket as Insiders Look to Cede Majority Control
2022.04.11 15:36
By Geoffrey Smith
Investing.com — Shopify (NYSE:SHOP) stock rose 2.7% in premarket trading, bucking a generally weak market trend after the e-commerce company said its key personnel will give up majority voting control.
Under the terms of a proposal posted on the company’s website, the long-serving director and ‘angel investor’ John Phillips and his wife Catherine will convert their Class B shares, which have preferential voting rights, into Class A shares, ones held by Shopify’s outside shareholders.
That would raise the total voting rights of the Class A shares to 59% from 49% currently. The remaining voting rights will remain with the Class B shares, which are held by CEO and founder Tobias Lütke and affiliates. It would also ensure that Lütke is not able to pass on control of the company to future generations.
Shopify said it will seek approval for the measures at the same time as for a 10-for-1 stock split aimed at making its stock more accessible to smaller investors. It’s the latest company to take such a measure, after similar moves by Amazon (NASDAQ:AMZN), Tesla (NASDAQ:TSLA), and others.
“The proposal will…strengthen the foundation for long-term stewardship by Mr. Lütke, a proven leader who has delivered significant shareholder value since the Company’s IPO,” the statement said. “This stability of leadership is expected to cement the Company’s focus on the long-term to the lasting benefit of merchants, employees and shareholders.”
Shopify’s stock had exploded in the early stages of the pandemic, as investors priced in a massive acceleration of the secular trend to e-commerce. Rock-bottom interest rates, which allowed analysts to model for low capital costs throughout a long growth phase, also supported its valuation.
However, that calculation has been undone by the Federal Reserve’s signaling that it will tighten monetary policy rapidly to rein in inflation. Since peaking at $1,762.92 in November last year, it has lost two-thirds of its value to trade at $603.18 as of Friday’s close.
Despite that selloff, it still trades at multiples that would have been considered expensive before the age of zero interest rates. At Friday’s close, it traded at well over 10 times the company’s expected sales in 2022. Shopify had said in February that it expected revenue growth to slow from a rate of 57% in 2021.
