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Is Shopify Ready to Do a Stock Split?

Dan Caplinger, The Motley Fool

Shopify (NYSE: SHOP) has dramatically changed the way that small and mid-sized retail businesses carve out a presence on the internet. E-commerce has become a substantial and increasingly important source of revenue for retailers, so it's imperative for them to set up functional e-commerce websites, and Shopify aims to make that process as painless and efficient as possible. Millions of customers have used Shopify to join the world of e-commerce, and investors in the website platform provider have reaped the rewards in the roughly three years since the company went public.

One reflection of just how well Shopify has done is the path of its stock price. The company initially expected to price its shares in its IPO at between $12 and $14 per share, but strong demand eventually led Shopify to boost that price to $17. By the close of trading on its first day as a public company, Shopify had already enjoyed a more than 50% gain, and it only took a couple of years for the share price to breach the triple-digit threshold. Some believe that now would be a good time for Shopify to consider passing another milestone by doing a stock split.

Shopify logo of a green bag with the letter S on it.

Image source: Shopify.

Why hasn't Shopify done a stock split before now?

To come up with a rationale for why a particular company might split its stock in the future, the first thing to do is look at its past practices. In its short history as a publicly traded company, Shopify has never done a stock split.

In large part, much of the reasoning behind Shopify's decision might well come from the simple fact that it hasn't been public all that long. Impressive gains in the first two years of the stock's history led to a quadrupling in price, and the advance through the $100-per-share mark in the summer of 2017 stemmed from the huge demand that Shopify got for its services. Steep growth rates held out the promise of an extended period of prosperity for the e-commerce platform provider, and the sky seemed to be the limit for key metrics like sales.

Over the past year, Shopify shares have seen more volatility. Comments from short-selling specialist Andrew Left at Citron Research hit the stock for a 20% loop, with allegations of questionable tactics among affiliates signing up new clients for the e-commerce service. Even with the ups and downs, the stock price still has posted an overall advance since this time last year, and both company officials and bullish shareholders are optimistic about Shopify's prospects for future growth. In particular, solid results during 2018 have helped support the stock, and the possibility of strategic collaborations with big tech players like Apple has encouraged investors to consider a much larger scope of business than Shopify currently serves.

Is now the time for a split?

Shares briefly climbed above the $170 mark last month as enthusiasm for the business reached a peak, but the summer swoon that hit many high-flying tech stocks led to a roughly 20% correction for Shopify. Even so, with the stock price in the $130s, the e-commerce specialist is firmly in the triple-digit territory that used to be a key line in the sand for companies considering stock splits.

Yet in recent years, investors have stopped calling so vocally for companies to split their shares. In the distant past, it was difficult to buy stocks in less than 100-share increments, and the need to spend $10,000 or more just to buy a minimal amount of a stock with a triple-digit price tag deterred some small investors from ever making an investment. Now, though, discount brokers and increased liquidity in the markets have made it far easier for those with smaller amounts of capital to invest to buy just a handful of shares.

Shopify's management also doesn't seem to have the issue on its radar. Key executives haven't raised the issue of a stock split in any of the company's quarterly conference calls. Stock splits don't affect the fundamental value of a company, so it doesn't seem likely that Shopify's even thinking about doing one right now.

Enjoy the run

Even if Shopify never splits its stock, investors shouldn't mind too much. With such stellar long-term gains and the potential for even more success ahead, an ever-rising stock price would reward those who've stuck with Shopify through good times and bad.

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Dan Caplinger owns shares of Apple. The Motley Fool owns shares of and recommends Apple and Shopify. The Motley Fool has the following options: long January 2020 $150 calls on Apple and short January 2020 $155 calls on Apple. The Motley Fool has a disclosure policy.