Is Shopify positioning to join U.S. stock index, boost U.S. trading?

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Canadian tech giant Shopify Inc. has listed a U.S. headquarters alongside its home base in Ottawa for the first time in an annual regulatory filing with the U.S. Securities and Exchange Commission.

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A spokesperson said the filing was made to more closely align the company with its software peers but did not directly answer a question about whether Shopify had considered a more formal move south.

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“Shopify operates on the internet, everywhere — we’re a global company,” the spokesperson said. “We chose to voluntarily file certain SEC forms, such as a 10-K, in order to align our disclosures more closely with other software peers we believe our investors are familiar with.”

Analysts at TD Securities Inc. spotted the new disclosure when Shopify made the voluntary 10-K filing — a form typically used by domestic issuers in the United States — with the SEC on Feb. 11 and suggested in a Feb. 20 note that the e-commerce company could be positioning itself for inclusion in U.S. stock-tracking indices that would expand its shareholder base.

Foreign issuers such as Shopify normally file only a 40-F form on the EDGAR filing system.

“Interestingly, at the top of the 10-K, is a shiny new second HQ (headquarters in New York) — previous filings only included a Cdn (Canadian) HQ,” the analysts led by Peter Haynes said in the note.

The address on Lafayette Street in New York sits alongside Shopify’s O’Connor Street address in Ottawa in the space marked for “Address of Principal Executive Offices.” Only the company’s Ottawa area phone number is listed in that section.

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The TD analysts dug further into the filing and spotted a number of changes and added disclosure which they say bolsters their theory that Shopify is setting the table for possible inclusion in the Russell index and potentially other U.S. performance-tracking indices that could lead to as much as $6 billion in demand for Shopify shares.

“Jumping further down the rabbit hole, SHOP (Shopify) has also adjusted how they report their segmented assets, choosing to include current assets in the calculation this year, which flips the geographic breakdown from (about) 86 per cent Canada reported in last year’s annual filing … to (around) 78 per cent U.S. in its latest annual filing,” the analysts wrote.

Such changes alongside added disclosures in the filing neatly fit criteria established by the indices such as the Russell that track the performance of U.S. equities, they said.

The Russell indices are maintained by FTSE Russell, a subsidiary of the London Stock Exchange Group, and like other indices are used as a benchmarking tool of equity performance and direction by investors and traders globally. The Russell 1000 index measures the performance of large and mid-cap U.S. equities and casts a wider net than the S&P 500.

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“Since the country with the majority of assets is now the U.S. and that matches the HQ, we expect that SHOP will be eligible for inclusion in the U.S. indices at the next annual review in June,” the analysts wrote.

The Shopify spokesperson did not directly respond to questions about whether the Canadian company is interested in being included in key U.S. indices or considering re-domiciling in the United States — an expensive migration to another jurisdiction that extends beyond establishing a head office there — something Barrick Gold Corp. recently said it was considering.

Index inclusion can be driven by an outright change in headquarters to the United States, as Brookfield Asset Management did in January by moving its headquarters to New York as part of a larger corporate restructuring. But the TD analysts said Russell and other significant U.S. index providers make selections for inclusion based on “home country indicators” that go beyond a company’s headquarters. Factors scrutinized include incorporation, listings, method of reporting, filing types, existence of an IRS employer identification number (EIN) and location of assets and revenues.

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The analysts said Shopify’s voluntary 10-K filing includes changes such as the asset mix between countries that match the criteria.

“The enhanced disclosure in filings is likely to move the company closer to inclusion in other indices with material following in the U.S.,” they wrote.

If Shopify were to be included in the Russell 1000 index in June, for example, it would result in demand for roughly 52 million shares from “Russell indexers,” the analysts said, valuing the demand at $6 billion. Beyond the one-time impact of index inclusion, the percentage of Shopify stock traded in the U.S. would be likely to increase by five per cent in the longer term, the analysts said.

“While SHOP has not made any statement to our knowledge on the reasons for enhanced disclosure, the proof is in the pudding — or in this case the filings,” they wrote in a follow-up note on Feb. 24.

• Email: bshecter@postmedia.com

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