Shopify (SHOP) shares have nosedived 54.7% so far this year. As the world emerges from the COVID-19 pandemic, a host of sectors such as aviation, leisure, and travel, and importantly, brick-and-mortar store operators are expected to see gains.
Meanwhile, names such as Shopify that benefited immensely during the pandemic years may see an impact on their fortunes.
For Shopify, a host of factors is at play. So far, the company has delivered strong metrics. Compared to 2019, it has tripled its top line and more than doubled its gross merchandise volume (GMV). Conversely, concerns about slowing growth, inflation, and lower-than-expected guidance are weighing heavily on the stock.
Shopify is taking significant steps to stay on the path of growth. It plans to invest substantially in international expansion, and is also focusing on logistics and warehouses.
Along with this drive for growth, Shopify is making major progress via its sustainability fund, which is our point of focus today as the world pays more and more attention to the sustainability practices of companies. Let us have a deeper look at Shopify’s sustainability fund and its key achievements.
Shopify Sustainability Fund
The three-year-old Shopify Sustainability Fund is a global launchpad for climate entrepreneurs working at the forefront of technologies for carbon removal.
This fund is designed to drive demand for carbon removal, provide players in this space an opportunity to prove their impact, achieve scale, and spend the capital to lower future prices.
Its partner companies are focused on varying target areas such as biomass, direct air capture, mineralization, ocean, products, storage, forest, soil, and transportation. The fund’s commitment has already reached $32 million. Recently, it has partnered with nine companies. This brings the total companies partnered by the fund to over 20.
Shopify is walking the talk and is the largest purchaser for eight of these companies and the first purchaser for four of them. As a consequence, it is offering these companies robust revenue streams, which will help them secure financing. As a result, Shopify is one of the largest corporate purchasers of long-term carbon removal across the globe, with a total of 39,380 tons.
Shopify’s Head of Sustainability, Stacy Kauk, states, “Purchasing carbon removal from leading companies is critical to helping them scale, but purchasing from emerging companies pursuing novel approaches is equally essential. We need as many companies as possible innovating in this space to remove over 200 years of emissions to go beyond critical emission reductions.”
Impact of the Fund
The fund looks at key factors such as technology and process, plans to scale, and the size of the impact the fund’s purchases could potentially have. Using the prepayment agreements and external capital unlocked, these companies have boosted their development. Multiple companies supported by the fund have raised capital in the millions, boosted their carbon removal capacity by about 80x, and increased their customer bases by about 40x.
The top three categories where the fund has invested are direct air capture, transportation, and products.
New Entrants to the fund
Let us have a look at some of the key new names in the fund. First up is DroneSeed. The company is utilizing legacy methods with new technology such as drones, to reforest areas that are affected by wildfires. This will mitigate the loss of forest cover. DroneSeed’s largest project yet is to replant 300 acres of forest in Oregon’s Beachie Creek. Shopify is buying forward-looking climate action reserves certified carbon offsets from the project.
Second is Remora, in the transportation space. Its solution captures carbon dioxide from semi-truck tailpipes as they drive, and the captured carbon dioxide is stored long-term. Remora is deploying its devices on semi-trucks over the next few months and purchases by Shopify will help to decarbonize shipping on land.
We round off our list with Twelve, whose solutions could have a significant impact on commercial aviation. The company transforms captured carbon dioxide to produce E-Jet, which is an aviation fuel with over 80% lower carbon footprint than jet fuel made from fossil fuels.
Significantly, through its first-of-its-kind agreement, Shopify’s purchase of E-Jet will help Twelve with scaling up while also driving the adoption of the fuel by commercial airlines as well as freight carriers.
Analysts’ Take
Wells Fargo analyst Jeff Cantwell has initiated coverage on the stock with a buy rating and a price target of $834. Overall, the Street is cautiously optimistic about the stock with a Moderate Buy consensus rating based on 13 Buys and Holds each. The average Shopify price target of $982.44 implies a potential upside of 59.13% for Shopify.
Closing Thoughts
Shopify is taking significant steps in the fight to lower the impact of climate change. Its partnership provides these young companies with a much needed revenue stream, which also unlocks additional capital. Additionally, it is paving the way for other major companies to help decarbonize the planet.
While Shopify shares have suffered in the short term, with increasing focus of all stakeholders, including customers, partners, investors, and regulators on climate action, the company can reap massive rewards in the years to come.
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