'It Almost Doesn't Make Sense': Shopify’s Stock Split Explained

Analyst Dan Romanoff says the e-commerce company’s shares will have a fair value estimate of US$45 following the planned 10-1 split

Morningstar 27 June, 2022 | 9:44AM
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Shopify (SHOP) is the latest big company to initiate a stock split that will see investors receive an additional 10 shares on top of each one they already own. It will be the company’s first stock split since it went public in May 2015.

The Canadian e-commerce platform’s stock split was announced in April and approved by shareholders during its annual general meeting this month. It will take effect on 28 June.

Shopify share performance

Shopify’s Stock Split and What It Means

The split won’t affect Morningstar senior equity analyst Dan Romanoff’s view of the company, which he values at US$450 per share. After the split, the company’s fair value estimate will be adjusted to US$45 per share to accommodate for the 10-fold increase in Shopify’s outstanding share count.

"It almost doesn't make sense to split," Romanoff says.

That means the company will remain as a 4-star rated stock post-split, trading at a discount of 27% as of June 21. The company’s current fair value estimate was slashed after a lackluster first quarter.

"Although we remain bullish on e-commerce over the long-term, the near-term outlook for Shopify remains uncertain as we search for a new normal for e-commerce in a post-Covid-19 world," Romanoff says, "Combined with modest revisions to our long-term growth estimates and meaningfully lower profitability assumptions throughout our forecast, we are cutting our fair value estimate to US$450 per share from US$730."

Shopify’s narrow moat Morningstar Economic Moat Rating, meaning the company has a competitive advantage, will also not be impacted by the split.

Upcoming Stock Splits

Shopify is one of several tech and consumer companies planning to split its shares. Google’s parent company Alphabet (GOOGL) (GOOG) is planning a 20-1 split for both its Class A and C shares, effective 15 July.

Tesla (TSLA) has also filed a proposal for a 3-1 split that will be voted on at its annual general meeting on 4 August. If passed, it will be the electric vehicle maker’s second stock split in three years.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
Rating
Alphabet Inc Class A119.70 USD2.63Rating
Alphabet Inc Class C120.65 USD2.68Rating
Shopify Inc Registered Shs -A- Subord Vtg51.90 CAD9.75Rating
Tesla Inc883.07 USD3.89Rating

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