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Making sense of the markets this week: August 2, 2021

July 31, 2021 Dale Roberts
Making sense of the markets this week: August 2, 2021

Shopify rings up profits, CEO becomes the richest Canadian entrepreneur

Shopify, the Canadian tech darling, has increased its lead as the most valuable company in Canada. Shopify reported this week with revenue and earnings that topped expectations. Quarterly revenue surpassed $1 billion (at $1.11 billion) and quarterly profits climbed.

According to the Shopify press release, net income for the second quarter of 2021 was $879.1 million, or $6.90 per diluted share, compared with net income of $36.0 million, or $0.29 per diluted share, for the second quarter of 2020. Q2 2021 net income includes a $778 million unrealized net gain on our equity investments. Shopify earned $2.24 per share on an adjusted basis in the quarter ended June 30, including gains on equity investments, up 113% from a year earlier.

Shopify sets up e-commerce websites for small businesses, and also enables digital payments and shipping. The company is number two in North America with respect to e-commerce services, behind the behemoth Amazon. It’s estimated about 10% of all e-commerce traffic in the U.S. goes through stores hosted by Shopify, second only to Inc.’s 39%.

On my site, I provided an example of how Shopify enabled a Canadian craft brewer not only to navigate and pivot during the early days of the pandemic; the Etobicoke, Ont., company actually increased sales and profits thanks to Shopify.

The company now has the greatest weighting on the Toronto Stock Exchange—it’s the most valuable company in Canada, having surpassed Royal Bank of Canada for that title. Given its incredible success, that stock can certainly drive the market indices.

If you take a dividend approach, you’re missing out on this incredible growth story,. Readers will know that I’m a big fan of the juicy dividend slant for Canadian stocks. But we might also include the growth kicker of the burgeoning Canadian tech sector that includes many incredible success stories (although Shopify almost dominates that index ETF).

It has been reported that CEO Tobias Lütke is now the richest Canadian. According to the Globe and Mail (paywall)…

“Mr. Lutke’s stake in the e-commerce software provider is now worth US$13.3-billion, or $16.7-billion in Canadian dollars. In addition, stock sale records show Mr. Lutke has generated gross proceeds of US$490-million since the beginning of 2020 by selling Shopify shares.

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