Every investor in Shopify Inc. should be aware of the most powerful shareholder groups. With 61% stake, institutions possess the maximum shares in the company. That is, the group stands to benefit the most if the stock rises (or lose the most if there is a downturn).
And so it follows that institutional investors was the group most impacted after the company's market cap fell to US$61b last week after a 8.7% drop in the share price. The recent loss, which adds to a one-year loss of 43% for stockholders, may not sit well with this group of investors. Also referred to as “smart money”, institutions have a lot of sway over how a stock's price moves. Hence, if weakness in Shopify's share price continues, institutional investors may feel compelled to sell the stock, which might not be ideal for individual investors.
What Does The Institutional Ownership Tell Us About Shopify?
Institutions typically measure themselves against a benchmark when reporting to their own investors, so they often become more enthusiastic about a stock once it's included in a major index. We would expect most companies to have some institutions on the register, especially if they are growing.
Shopify already has institutions on the share registry. Indeed, they own a respectable stake in the company. This implies the analysts working for those institutions have looked at the stock and they like it. But just like anyone else, they could be wrong. When multiple institutions own a stock, there's always a risk that they are in a 'crowded trade'. When such a trade goes wrong, multiple parties may compete to sell stock fast. This risk is higher in a company without a history of growth. You can see Shopify's historic earnings and revenue below, but keep in mind there's always more to the story.
Investors should note that institutions actually own more than half the company, so they can collectively wield significant power. Shopify is not owned by hedge funds. Capital Research and Management Company is currently the company's largest shareholder with 6.5% of shares outstanding. Meanwhile, the second and third largest shareholders, hold 6.3% and 5.7%, of the shares outstanding, respectively. Tobias Lütke, who is the second-largest shareholder, also happens to hold the title of Chief Executive Officer.
Insider Ownership Of Shopify
While the precise definition of an insider can be subjective, almost everyone considers board members to be insiders. Company management run the business, but the CEO will answer to the board, even if he or she is a member of it.
I generally consider insider ownership to be a good thing. However, on some occasions it makes it more difficult for other shareholders to hold the board accountable for decisions.
Shareholders would probably be interested to learn that insiders own shares in Shopify Inc.. The insiders have a meaningful stake worth US$3.9b. It is good to see this level of investment.
General Public Ownership
The general public, who are usually individual investors, hold a 32% stake in Shopify. While this size of ownership may not be enough to sway a policy decision in their favour, they can still make a collective impact on company policies.
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