Employees at Shopify’s headquarters in Ottawa.
Chris Wattie | Reuters
I’m old enough to remember when BlackBerry put Canadian technology on the map. Sleepy Waterloo, known to me for Wilfrid Laurier University and hockey tournaments, became known globally as the home of Blackberry, a hot spot for engineers, with the likes of Apple and Intel circling for talent.
Many Canadians also remember the arrival of Apple’s iPhone and how Jim Balsillie, one of BlackBerry’s two CEOs, responded: “It’s kind of one more entrant into an already very busy space with lots of choice for consumers,” he told Reuters. “But in terms of a sort of a sea-change for BlackBerry, I would think that’s overstating it.”
The rest, as they say, is history.
Now, there’s a new Canadian tech kid in town: Tobias Lutke’s Shopify, an e-commerce software company. By allowing merchants to quickly and easily set up and maintain an online store, it helps them compete against the behemoth in the room, Amazon. It’s been expanding its business to provide tools in payments, inventory control and shipping.
Shopify has also had one of the hottest rallies of the year, as companies look to bolster their e-commerce capabilities to make up for plunging retail sales as the coronavirus pandemic forces stores to shut down and people to stay home. Shares have surged 65 percent over the last month, trouncing the performance of another investor darling, Zoom, which has been hit by privacy and security concerns.
Shopify is now the second largest company in Canada by market capitalization, its value surpassing CA$100 billion. It’s bigger than all the Canadian banks but one — Royal Bank of Canada — and it’s quickly closing in. It’s also way ahead of most rivals in the e-commerce space, at more than twice the market cap of eBay and many times larger than Farfetch and Etsy.
Some analysts are understandably a little wary.
Shopify’s revenue in 2019 was less than CA$8 billion. RBC’s was CA$46 billion. And while RBC notched nearly CA$13 billion in net income last year, Shopify had operating losses of more than CA$140 million.
But in a time when most companies are facing a contraction ahead of an almost certain recession, investors are looking for rare examples of growth. Shopify’s revenue grew by more than 40 percent last year while gross merchandise volume (GMV) grew nearly 50 percent to CA$61 billion. In contrast, Ebay’s 2019 GMV was US$90 billion, a decrease of 5 percent from the previous year.
My friend and former colleague Amber Kanwar, business anchor at Canada’s BNN network, points out that the number one market cap position in Canada can seem to carry a curse. Blackberry once held that title, as well as Nortel (Canada’s largest bankruptcy case) and Valeant Pharmaceuticals (mired by fraud allegations and criminal investigations).
This time around, the coronavirus pandemic could still play out in many unpredictable ways. While shelter-in-place orders are driving e-commerce demand now, a long recession could see many of Shopify’s customers scale back or go out of business.
In addition, company rolled out Shopify Capital to extend loans to US merchants in 2016. It recently extended the program to Canadian small and medium sized businesses affected by the pandemic.
Shopify had extended about $160 million in loans and advances to merchants as of December 2019. If merchants run into trouble paying them back, it could lower Spotify’s cash flow and increase net losses.