Shopify Plans Stock Split That’s Bound to Tap Retail Frenzy

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(Bloomberg) — Canada’s Shopify Inc. just became the latest tech giant to announce plans to split its stock in a bid to bring a higher number of loyal retail investors to its shareholder base.

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Shopify said on Monday it plans a 10-for-1 stock split for its common stock pending shareholder approval on a June 7 meeting. The proposed share split “will make ownership more accessible to all investors,” the company said in a statement.

Recent split proposals from Alphabet Inc., Amazon.com Inc. and Tesla Inc. triggered sharp rallies on the stocks as retail traders — who tend to favor stocks with high liquidity and lower price tags — jumped in.

“The reason that Amazon, Apple, Tesla and now Shopify are doing stock splits is to make their shares more attractive to retail investors,” D.A. Davidson & Co. analyst Tom Forte said in an interview. “When you look at Amazon’s actions, one of the first things they did to stimulate the share price was to announce both a repurchase plan and a stock split. We’re seeing instances where companies’ stocks are under pressure and they are announcing stock splits.”

But Shopify’s rally was more muted after seesawing in earlier trading. The shares, which have lost about 55% of their value this year, closed higher by 2.9% in Toronto, pulling up the S&P/TSX Information Technology Index by 0.6% while the S&P 500 Information Technology Index slumped 2.6%, the most in more than a month. But the stock ranked outside of the top 10 most traded on Fidelity’s platform and its ticker was largely absent from platforms like Reddit’s WallStreetBets or Stocktwits.

In addition to the split, Shopify announced it will give Chief Executive Officer Tobi Lutke a special “founder share” that will preserve his voting power as long as he’s at the company. Under the plan, Lutke, his family and his affiliates would together retain 40% of the votes at the company, even as their ownership stake changes.

For some, this shows an attempt by senior management to preserved Lutke’s position as the company embarks in longer-term initiatives, including the development of Shopify’s fullfillment network after it cancelled contracts with several warehouse and fulfillment partners in January.

“The changes are designed to prevent any knee jerk reactions, given that the execution of these initiatives do require some time,” said Richard Tse, an analyst at National Bank of Canada. “If it doesn’t execute in the short term and investors get impatient, who knows what they would suggest the board look at doing with management.”

Read more: Tesla, Amazon Stock Splits Trigger Retail Stampede: Tech Watch

Shopify soared above C$250 billion ($198 billion) in market value during the pandemic as online selling took off, but it has given back most of those gains.

The shares are down this year amid a selloff in richly valued technology stocks — costing Lutke, 41, about $6.3 billion in personal wealth. He’s still one of the richest Canadians, with a net worth of $5.5 billion, according to the Bloomberg Billionaries Index.

Read More: Shopify’s Slump Proves That It’s No Amazon

Analysts are still largely bullish on the stock, with 27 buys, 18 holds and two sell ratings. Tse at National Bank maintains his outperform rating with a $1,500 price target.

Morgan Stanley is serving as Shopify’s financial adviser on the proposed changes and Skadden, Arps, Slate, Meagher & Flom LLP and Stikeman Elliott LLP as legal counsel, according to the company’s statement.

(Updates share price move in fifth paragraph and adds analyst commentary in fourth graph.)

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