Life is good for Shopify (NYSE:SHOP) investors, although they may not see that right now. The stock fell more than 5% during after-hours trading on Monday after Shopify announced it plans to sell additional shares to raise money for future expansion efforts.
SHOP will sell 1.9 million shares at $317.50 to raise an estimated $603 million. The company plans to use the revenue it earns from the secondary shares to strengthen its balance sheet to fund future growth.
Morgan Stanley and Credit Suisse will lead the secondary offering, and each firm will receive an additional 285,000 shares. This additional stock offering will dilute any outstanding shares by 2%, hence the reason for the after-hours drop.
Is this secondary offering something current investors should be concerned about? Here are a few things you need to know about SHOP stock.
SHOP Is Expanding E-Commerce Capabilities
Shopify provides an online store and retail point-of-sale system for e-commerce businesses. And part of the reason SHOP stock has taken off this year is that the company continues to improve its e-commerce platform and services.
The platform is more reliable, has lower upfront costs and utilizes cloud computing. And SHOP plans to spend an additional $1 billion on its network over the next five years.
Last month, Shopify unveiled the Shopify Fulfillment Network. This service will allow its merchants to offer convenient and timely shipping at affordable rates.
Then last week, the company announced it was investing $450 million to acquire the robotics and warehouse automation company 6 River Systems. This will allow Shopify to continue to expand its fulfillment network and the deal is expected to bring in an additional $30 million in revenue this year.
Shopify Stock Is Growing Quickly
Last month, Shopify released its second-quarter earnings report which showed the company’s revenue increased 48% year-over-year. And the company’s non-GAAP earnings exceeded investor expectations as well.
This past year, Shopify surpassed eBay (NASDAQ:EBAY) to become the second-largest e-commerce platform. The company continues to grow quickly because it offers a superior platform for online merchants.
As long as e-commerce solutions are in demand, Shopify should have no problems with continued growth. Some analysts have even claimed the platform could eventually challenge Amazon (NASDAQ:AMZN) for its number one spot.
The Bottom Line on SHOP Stock
Even after the company’s shares fell, Shopify stock is still up 144% year-to-date. For that reason, some analysts have recommended caution. Out of the 21 analysts currently reviewing the stock, eight have given it a “hold” rating.
However, Shopify’s cloud-based platform continues to grow in popularity because it solves a common pain point for online merchants. So in my opinion, investors shouldn’t get too worked up by the secondary offering. The stock has a lot more room to grow in the coming years.
As of this writing, Jamie Johnson did not hold a position in any of the aforementioned securities.