Shopify pushing to become 'disruptive force' in warehousing with US$450M acquisition, analysts say

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Editor's Note

This story was updated with analyst commentary.

Shopify’s plan to acquire a Massachusetts-based fulfilment solutions company in a US$450-million cash-and-share deal shows the e-commerce giant is pushing hard to become a “disruptive force” in the warehousing and shipping side of online retail, analysts said Tuesday.

Ottawa-based Shopify says the acquisition of 6 River Systems, announced Monday, will give it access to fulfilment software and robotics, including mobile robots designed to get orders shipped more efficiently from warehouses.

Shopify announced in June that it would spend over US$1 billion in the next few years to establish a network of U.S. fulfilment centres, providing its merchants with an alternative to online giant Amazon in the warehousing and shipping sector. 

On Tuesday, a Shopify spokesperson said the 6 River acquisition is part of the company’s drive to “democratize commerce” by lowering shipping costs and speeding up delivery times for consumers who shop from merchants using the company’s platform.

“Shopify and 6 River Systems have a shared vision to change the game in fulfilment, by applying the best technology to help companies of all sizes compete,” the spokesperson said in an email.

Analysts generally applauded the deal, which is expected to close in the fourth quarter of 2019 and will add about 130 employees at 6 River Systems’ headquarters in Waltham, Mass., to Shopify’s payroll.

In a research note, Ygal Arounian of California-based Wedbush Capital Partners called it a “great acquisition” for the Ottawa firm. Noting that Hexa Research predicts the warehouse automation market will be worth $6 billion by 2025, Arounian said the deal “opens up an entirely new addressable market” for Shopify.

“This is by far Shopify’s largest acquisition to date, which to us proves Shopify’s full-fledged intention to be a disruptive force in fulfilment services,” he wrote. 

Richard Tse of National Bank of Canada said his firm estimates the deal could generate up to $500 million in shipping and fulfilment fees over time for Shopify.

“What’s clear is that Shopify is very serious about fulfillment given the price being paid in this strategic acquisition and that the company is serious about its aspirations here,” he said in a note. “What’s impressive is that this initiative essentially came out of left field and yet Shopify is already executing.”

Noting that 6 River’s autonomous robotics technology doesn’t require new infrastructure and can be rolled out quickly, David Hynes Jr. of Canaccord Genuity said he views the transaction as “a logical step” in the evolution of Shopify’s fulfilment strategy. 

The e-commerce firm is on pace to reach a market capitalization of $100 billion within the next six to eight years, Hynes said in a note. “For investors who can stomach the volatility that comes with owning a high-valuation stock, we believe SHOP should be a core growth holding,” he added.  

Analyst Brian Peterson of Raymond James said in a note that while Shopify is still likely to partner with other companies as it ramps up its fulfilment network, the 6 River acquisition gives it “more paths towards a differentiated fulfilment offering longer-term.”

Shopify says it will pay 60 per cent in cash and 40 per cent in class A subordinate voting shares for the U.S. company, including $69 million in shares and options that will vest to 6 River Systems founders and employees based on certain conditions.

Shopify, which says it has 820,000 merchants as customers, is a technology platform that helps retailers sell merchandise online.

​– With files from the Canadian Press