With 66% ownership in Shopify Inc. (NYSE:SHOP), institutional investors have a lot riding on the business

Key Insights

• Given the large stake in the stock by institutions, Shopify's stock price might be vulnerable to their trading decisions
• A total of 25 investors have a majority stake in the company with 49% ownership
• Recent sales by insiders

If you want to know who really controls Shopify Inc. (NYSE:SHOP), then you'll have to look at the makeup of its share registry. With 66% 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 things are looking up for institutional investors after the company gained US$7.2b in market cap last week. The gains from last week would have further boosted the one-year return to shareholders which currently stand at 52%.

Let's take a closer look to see what the different types of shareholders can tell us about Shopify.

Check out our latest analysis for Shopify

What Does The Institutional Ownership Tell Us About Shopify?

Institutional investors commonly compare their own returns to the returns of a commonly followed index. So they generally do consider buying larger companies that are included in the relevant benchmark index.

We can see that Shopify does have institutional investors; and they hold a good portion of the company's stock. This can indicate that the company has a certain degree of credibility in the investment community. However, it is best to be wary of relying on the supposed validation that comes with institutional investors. They too, get it wrong sometimes. 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. Hedge funds don't have many shares in Shopify. Our data shows that Capital Research and Management Company is the largest shareholder with 9.6% of shares outstanding. Tobias Lütke is the second largest shareholder owning 6.2% of common stock, and Baillie Gifford & Co. holds about 4.9% of the company stock. Tobias Lütke, who is the second-largest shareholder, also happens to hold the title of Chief Executive Officer.

Our studies suggest that the top 25 shareholders collectively control less than half of the company's shares, meaning that the company's shares are widely disseminated and there is no dominant shareholder.

While studying institutional ownership for a company can add value to your research, it is also a good practice to research analyst recommendations to get a deeper understand of a stock's expected performance. Quite a few analysts cover the stock, so you could look into forecast growth quite easily.

Insider Ownership Of Shopify

While the precise definition of an insider can be subjective, almost everyone considers board members to be insiders. Management ultimately answers to the board. However, it is not uncommon for managers to be executive board members, especially if they are a founder or the CEO.

Insider ownership is positive when it signals leadership are thinking like the true owners of the company. However, high insider ownership can also give immense power to a small group within the company. This can be negative in some circumstances.

We can see that insiders own shares in Shopify Inc.. It is a very large company, and board members collectively own US$9.1b worth of shares (at current prices). Most would say this shows a good alignment of interests between shareholders and the board. Still, it might be worth checking if those insiders have been selling.

General Public Ownership

The general public, who are usually individual investors, hold a 27% stake in Shopify. While this group can't necessarily call the shots, it can certainly have a real influence on how the company is run.

Next Steps:

It's always worth thinking about the different groups who own shares in a company. But to understand Shopify better, we need to consider many other factors. Case in point: We've spotted 2 warning signs for Shopify you should be aware of.

If you are like me, you may want to think about whether this company will grow or shrink. Luckily, you can check this free report showing analyst forecasts for its future.

NB: Figures in this article are calculated using data from the last twelve months, which refer to the 12-month period ending on the last date of the month the financial statement is dated. This may not be consistent with full year annual report figures.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.