Shopify’s Stock Split Announcement Isn’t Boosting Shares As Its Billionaire CEO Looks To Gain More Control

Topline

Canada-based e-commerce company Shopify, whose shares are down over 50% this year amid the wider market sell-off, proposed a 10:1 stock split on Monday as well as more voting power for its billionaire CEO.

Shopify CEO Tobi Lutke.

David Fitzgerald/Sportsfile via Getty Images

Key Facts

Shopify announced on Monday that its board of directors has approved a proposed 10:1 stock split, which could go into effect on June 28 if approved by shareholders at an upcoming meeting on June 7.

The planned share split will make “share ownership more accessible to all investors,” according to a statement from Shopify, which also proposed updates to its governance structure that would strengthen the foundation for “long-term stewardship” by billionaire cofounder and CEO, Tobi Lutke.

Shopify is seeking shareholder approval for a new class of stock—the “founder share”—which would be issued to Lutke, increasing his voting power (to 40%, when combined with his Class B holdings) and allowing him to remain in charge of any big decisions at the company such as blocking takeover offers.

Shares rose as much as 3% early on Monday following news of the proposed stock split before paring back gains: Shopify’s stock was up just 0.8% by midday.

The e-commerce firm, which helps companies set up and run online stores, was considered a pandemic-era darling, with its stock surging roughly 180% in 2020 and another 20% in 2021 as the company benefited from businesses moving online during lockdowns.

The stock has fallen over 55% so far this year, however, with the pandemic boost starting to fade amid a wider market sell-off caused by the Federal Reserve’s interest rate-hiking campaign and volatility from Russia’s invasion of Ukraine.

Key Background:

Shopify is the latest in a growing number of companies seeking a stock split this year. Google-parent Alphabet proposed a 20:1 split in early February and Amazon a 20:1 split in March, while electric-vehicle maker Tesla recently asked shareholders to approve yet another stock split (after a 5:1 split in August 2020).

What To Watch For:

While stock splits don’t do much to change a company’s market value, they do often lead to a short-term boost in share price. Tesla, Amazon and Alphabet all saw share gains of 6% or more on the day of their respective announcements. While Shopify is yet to see a major boost, stock splits historically have provided better share price performance, data from Bank of America last month shows. Stocks that announced a stock split rose by an average of 25% over the next 12 months, versus 9% for the broader S&P 500, according to the firm.

Big Number: $5.6 Billion

That’s how much Shopify CEO Tobi Lutke is worth, according to Forbes’ estimates. He owns around 6% of the company, which he took public in 2015 at a $1.3 billion valuation. Today, Shopify’s market capitalization has grown to a massive $75 billion.

Crucial Quote:

“Tobi is key to supporting and executing Shopify’s strategic vision and this proposal ensures his interests are aligned with long-term shareholder value creation,” Shopify’s lead independent director, Robert Ashe, said in a press release.