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A Vital New Service of the Socially Distant Era

Small business is the lifeblood of the economy and our latest pick is an essential service to this huge industry.

According to JP Morgan Chase, small businesses are the anchor of the US economy with 48% of all US employees working in the sector and they provide 33% of US exports. But it is the same sector that has been hit hardest by coronavirus.

The good news is thousands of small businesses all over the country are opening again for the first time in weeks.

It is a good opportunity for a Canadian software company most investors still don’t know.

We have all heard of Amazon (AMZN), that evil company that should be in everyone’s portfolio because once it enters an industry, the traditional bricks and mortar companies file for bankruptcy. Just last week we saw JC Penny begin bankruptcy proceedings on the same day Amazon stock hit an all-time high.

The coronavirus has caused many small businesses to close their doors. But they have not been dormant. Many have been thinking of new and better ways of doing business.

Which is where Shopify (SHOP) comes in. It is a small Canadian company that makes software and services to help main street businesses move their storefronts online.

They say necessity is the mother of invention, and it is certainly true for American small businesses who have suddenly found a global marketplace for their goods. Shopify’s chief technology officer tweeted on April 20th that the company was handling as much traffic every day as a typical Black Friday, normally the largest online shopping day of the year.

The reason for this expansion is because retailers can embed the Shopify cart within their own website and, like Amazon, Shopify now has its own fulfillment network too.

You would think this would put Shopify squarely up against Amazon and indeed Amazon has a product called Amazon Webstores which is similar. But the giant closed that business to new sellers in 2015 which led to the rise of Shopify.

Presently Shopify is still a small company with a market capitalisation of $92Billion vs Amazon’s 1.25Trillion. The value of all the goods sold on its platform in 2018 amounted to only $41Billion, a tiny 1.5% of global online sales. The bet is Shopify can grab a bigger piece of that growing pie as it emerges as one of the platform winners. It is a wise bet.

Revenue jumped 47% year-over-year and the stock is up 96% year-to-date

We would be happy to add Shopify to our portfolio on any pullback

Disclaimer: Capital 19 Pty Ltd ABN 17 124 264 366 AFSL 441891 (‘Capital 19’) believes the information contained is reliable, however, no warranty is given as to its accuracy and persons relying on this information do so at their own risk. This communication is for general information only and was prepared for multiple distributions and does not take account of the specific investment objectives of individual recipients and it may not be appropriate in all circumstances. Persons relying on this information should do so considering their specific investment objectives and financial situations. Any person considering action based on this communication must seek individual advice relevant to their circumstances and investment objectives. Subject to any liability which cannot be excluded under the relevant laws. Any opinions or forecasts reflect the judgment and assumptions of Capital 19 and its representatives based on information at the date of publication and may later change without notice. Any projections contained in this presentation are estimates only and may not be realised in the future. The investment manager certifies that all the views expressed in this document accurately reflect their views about the companies and securities referred to in this document and that their remuneration is not directly or indirectly related to the views. Capital 19, its directors, representatives, employees or related parties may have an interest in any of the companies and securities in this document and may earn revenue from the sale or purchase of any financial product referred to in this document or any advice. Past performance is not a reliable indicator of future performance. Unauthorised use, copying, distribution, replication, posting, transmitting, publication, display, or reproduction in whole or in part of the information contained in this document is prohibited without obtaining prior written permission from Capital 19.
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