Shopify announces 10-for-1 stock split plan
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Shopify has announced a 10-for-1 stock split.
The move will affect Class A and Class B shares and is part of a trend of public companies using a split to make their stock more appealing to investors.
The plan is that shareholders who own stock as of June 22, 2022, will receive nine additional shares on June 28, 2022.
Also included in the plan is to create a new class of shares, called “Founder Shares,” aimed at preserving CEO and founder Tobi Lutke’s voting power. Right now Class A shares get one vote per share and Class B shares get 10 votes per share.
The founder shares would give Lutke a variable number of votes with the net result of giving him control of about 40% of the voting power.
Shopify experienced massive growth during the pandemic and has long been a darling of Canadian companies. Its stock soared to over $1,600 in November 2021, making it the country’s top valued company but has since lost more than half of that value, settling at around $620 in premarket trading the day the plan was announced, April 11, 2022.
Stock splits reduce the value of each share rather than increasing market capitalization. For example, under the proposed plan, each share of Shopify will become 10 as of June 28 — but with each at one-tenth the value of whatever the stock is priced at that day.
Splits are often used to make a stock more liquid — meaning that it is more accessible to more buyers since, in general, more investors can afford to buy a stock for $62 a share than $620 a share.
Some economists argue that this, along with a bullish outlook on the stock in question, can make a stock more appealing to investors and cause more shares to get bought, generally leading to higher share prices. Companies that issue splits can also be seen as optimistic for future growth.
Although sometimes referred to as a stock divide, splits are distinct from dividends, which involves the direct distribution of profits among shareholders.