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Shopify to acquire Toronto-based app studio Tiny Hearts

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Past and present members of the Tiny Hearts development team.

Ottawa’s Shopify (Shopify Stock Quote, Chart, News: TSX, NYSE: SHOP) has acquired Toronto app studio Tiny Hearts.

Although no financial terms were disclosed and the deal presumably wasn’t material enough to justify that Shopify issued a press release, the news was revealed on Tiny Hearts blog Monday.

“We’re really excited to make biggest announcement we’ve ever made — Tiny Hearts has been acquired by Shopify! Our product team is joining Shopify and will be working from the Shopify Toronto office, which is just down the street from our current office,” said the post by founder Robleh Jama. “The acquisition also includes our apps and Busy Building Things, our online store and brand for creators.”

Tiny Hearts was founded four years ago by Jama, who decided to design a children’s app called Pocket Zoo, as he was expecting his first child. The small studio became known for “Wake”, its “beautiful and intuitive” alarm clock app and for Instamatch, a game that used photos from Instagram.

Tiny Hearts is not Jama’s first exit. He also founded Sneakerplay, a social network for people obsessed with sneakers. It was sold in 2009.

Jama says the respect for Shopify runs deep.

“We also had the chance to collaborate on products with some awesome companies — such as Shopify, Wealthsimple, Philips, and many more,” he wrote. “These projects allowed us to grow our team, take on new challenges, and build on our reputation as one of the top mobile studios. This is a huge milestone for our little company. Shopify is a company we have immense respect for and we’re super excited to be joining them to help build the future of commerce.”

Shopify, which went public on the New York Stock Exchange and the TSX midway through 2015 has been on a tear this year, its stock climbing from under thirty dollars in March to recent highs near sixty. But Mackie Research Capital analyst Nikhil Thadani thinks the company is still undervalued when compared to it peers. Thadani, who has a (U.S.) $60 target on Shopify recently explained why is bullish on it.

“As investors start looking to 2018, we believe SHOP will begin to appear more attractive owing to the company’s rapid revenue growth,” he says. “On a 2018 basis, Shopify trades at ~5x EV/Sales, in-line with US and Canadian SaaS companies. Shopify’s relative EV/Sales valuation appears inexpensive compared to US & Canadian SaaS stocks, when taking revenue growth into account (2018 expected 30% vs. peers’ 20%). A second pushback is Shopify’s lower Gross Margin, which in our view could be a more valid reservation at current levels. On a 2018 EV/Gross Profit basis, Shopify trades at ~9x vs. peers at an average ~7x (with most trading at ~6-9x). Our $60/sh target implies ~7x 2018 EV/Sales, skewed to high end of peers, which embeds expectations of continued revenue outperformance. Shopify has a track record of beating revenue expectations. A negative surprise is an as yet unrealized risk. That said, sooner than expected profitability from operating leverage could be a meaningful positive surprise.”

Shares of Shopify on the TSX today closed up 3.7 per cent to $54.02.

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About The Author /

Cantech Letter founder and editor Nick Waddell has lived in five Canadian provinces and is proud of his country's often overlooked contributions to the world of science and technology. Waddell takes a regular shift on the Canadian media circuit, making appearances on CTV, CBC and BNN, and contributing to publications such as Canadian Business and Business Insider.

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