Here’s Why Shopify (SHOP) Became One of RiverPark’s Top Contributors
RiverPark Funds, an investment management firm, published its “RiverPark Large Growth Fund” second quarter 2021 investor letter – a copy of which can be downloaded here. The RiverPark Large Growth Fund (the “Fund”) returned 13.1% for the second quarter of 2021, while its benchmarks, the S&P 500 Total Return Index (“S&P”) advanced 8.5%, the Russell 1000 Growth Total Return Index (“RLG”) returned 11.9%, while the Russell 1000 Value Total Return Index returned 5.2%. You can view the fund’s top 5 holdings to have a peek at their top bets for 2021.
In the Q2 2021 investor letter of RiverPark Funds, the fund mentioned Shopify Inc. (NYSE: SHOP), and discussed its stance on the firm. Shopify Inc. is an Ottawa, Canada-based e-commerce company, that currently has a $191.1 billion market capitalization. SHOP delivered a 34.73% return since the beginning of the year, extending its 12-month returns to 44.81%. The stock closed at $1,525.06 per share on August 06, 2021.
Here is what RiverPark Funds has to say about Shopify Inc. in its Q2 2021 investor letter:
"SHOP shares were our next top contributor. Shopify’s fundamentals remain stellar, with first quarter results that included $37 billion of merchandise sales, a 114% year-over-year increase, leading to 110% revenue growth for the company. Subscription solutions revenue grew 71% year over year, and SHOP also showed tremendous operating leverage, with adjusted operating expenses decreasing from 58% of revenue for 1Q20 to 36% for 1Q21.
Last year, $120 billion (9%) of US retail e-commerce sales flowed through SHOP, which was second only to Amazon and up from $61 billion for 2019. The company is still enjoying significant tailwinds as retail merchants of all sizes rapidly adopt SHOP’s software tools to display, manage and sell their products across a dozen different sales channels. We believe that the overall growth of e-commerce, combined with the development of new products and services at SHOP, will continue to drive revenue growth of greater than 50% per year over the next several years, accompanied by operating margin expansion to more than 20%, up from 15% last year."
Based on our calculations, Shopify Inc. (NYSE: SHOP) ranks 28th in our list of the 30 Most Popular Stocks Among Hedge Funds. SHOP was in 91 hedge fund portfolios at the end of the first quarter of 2021, compared to 90 funds in the fourth quarter of 2020. Shopify Inc. (NYSE: SHOP) delivered a 37.57% return in the past 3 months.
Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by 115 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.
At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, pet market is growing at a 7% annual rate and is expected to reach $110 billion in 2021. So, we are checking out the 5 best stocks for animal lovers. We go through lists like the 10 best battery stocks to pick the next Tesla that will deliver a 10x return. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our homepage.
Disclosure: None. This article is originally published at Insider Monkey.