Online retailer's recent surge revives talk of 'curse' among Canadian investment-industry insiders
Last week’s surge in Shopify’s shares has placed it among a handful of names that have managed at one point to pass RBC as Canada’s most valuable company. As prestigious as that group might seem, they’re also tied together by a dubious trend — unless the online retailer can break a long-running trend of misfortune.
The crux of the “curse,” well-known among investment professionals in the country, is that the top spot in market capitalization has historically been hard to hold on to for any type of company outside of banks. As noted by the Financial Times, seven companies before Shopify have managed to topple Canada’s largest lender — most often RBC — from the top spot, only to suffer badly afterwards.
“[E]very time a company has exceeded RBC in market cap, after a brief go at the top, their business has either stagnated remarkably or entered into substantial long-term decline,” Julian Klymochko of Accelerate Financial Technologies told the Times.
The former number ones span multiple sectors, including technology (Blackberry and the now-defunct Nortel Networks), commodities (Barrick Gold, PotashCorp, and Encana), and insurance (Manulife). Since their runs at the top, PotashCorp and Encana have taken on second lives as Nutrien and Ovintiv, respectively.
The most recent rise and fall happened to Bausch Health in 2015. Known then as Valeant, the company fell into disgrace after revelations of price fixing and accounting scandals.
Based on an analysis of market data, the Times reported that the seven companies’ drops from the top accounted for a collective $650 billion in lost stock-market wealth before they hit bottom.
Since its 2015 IPO, Shopify has shown solid performance, but the COVID-19 lockdown has pushed the shares into overdrive amid a crush of retailers looking to use its ecommerce platform in lieu of physical sales.
The firm’s eye-popping first-quarter results included a 47% revenue jump to reach US$470 million, which has powered year-to-date gains as high as 80% in its stock price and performance that puts the S&P 500’s rebound over the past month and a half to shame.
As noted by Klymochko, each of the companies that have overtaken RBC, including Spotify, benefited from “an overarching narrative that tried to justify the valuation,” whether it be the rise of the internet for Nortel, the mobile revolution for Blackberry, or the current belief in a permanent disruption of retail for Shopify.
Barry Schwartz, chief investment officer of Baskin Wealth Management, offered another take: the curse shows “how screwed up the [S&P/TSX Composite index] is,” namely in terms of how its concentration in three sectors makes it more susceptible to being dominated by a trending company.
Can Shopify break the curse? That depends on whether it can prove itself to be more than a story-of-the-moment stock. As Schwartz told the Times, “You can sum [the curse] up in a line — eventually profits matter.”
