The RBC Curse and Shopify's challenge
How one Canadian bank has dominated the marketplace for decades while a new challenger seeks to change the game.
Nortel Networks, the first to challenge RBC’s dominance
In the late 90s, you didn't need to know much about stocks or tech to be making money in the stock market. The dot com boom was a rising tide that lifted all boats, even if some of those boats could barely be called a liferaft. In Canada, Nortel Networks surpassed Royal Bank of Canada to become the largest company on the Toronto Stock Exchange (TSX) between 1998 - 1999 and, at one point, this single company had a valuation that represented about one third of the value of all companies listed on the TSX. With a valuation of nearly $400 Billion in the year 2000, Nortel was massive when compared to RBC, which had a valuation of around $20 Billion at the time. But, like many other dot com companies, Nortel's success came to an end swiftly. Just two years after it's peak, Nortel's valuation was sitting at a mere $5 Billion, leaving heavy losses for many investors in the company.
Unlike Nortel, RBC has continued to grow in the Canadian economy and is currently the largest publicly traded company in Canada. Few other companies have grown to test RBC's Market Capitalization over the years and many have met the same fate as Nortel, which has lead to what is called the RBC Curse. The Curse, it is said, is that any company that overtakes RBC as the largest publicly traded company is doomed for failure with nothing but economic losses and light pocketed investors in their future.
The March of Valeant Pharmaceuticals
Consider the fate of Valeant Pharmaceuticals. Having grown rapidly through a strategy of pharmacy acquisitions from 2010 - 2015, Valeant surpased RBC to became the most valuable company in Canada in 2015. This title was short lived as later in 2015, a researcher (and Valeant short seller) with Citron Research published a document that claimed that Valeant was recording false sales and, through its network of pharmacies, pushing more expensive drugs. Later on, Valeant was also caught up in criticism of its pricing strategy for drugs - yes, the same type of scheme that Martin Skreli, the infamous finance ‘Bro’ who purchased the $1 million dollar Wu-Tang Clan album, was involved in and played a part in his criminal conviction.
The stock price of Valeant Pharmaceuticals dropped more than 90%. The company was so tainted by the scandal that it was later force to change its name to Bausch Health (Ticker BHC) in order to distance itself from the public image of Valeant's crash. It was with the crash of Valeant Pharmaceuticals that the story of the RBC Curse - the idea that any company that overtakes Royal Bank as the largest public company in Canada is doomed to fail - was solidified in the psyche of Canadian finance.
Shopify’s first round
By 2020, with the RBC Curse well-established as lore in financial circles, when another company started to challenge RBC's valuation for the top spot as Canada's largest company, many including myself, looked upon the situation with curiosity. Shopify's rapid growth in 2020 and 2021 caught the attention of all those who closely watch the Canadian economy. The tech economy was hot and Shopify promised to be changing the game for online retailers all lead by a charismatic leader, Tobias Lutke.
But, alas, Shopify's crash in late 2021 came as the broader environment around tech companies shifted for the worse. Google, Facebook, and Amazon all layed off thousands of employees as the COVID-19 pandemic started to wane. Furthermore, central banks began to raise interest rates in order to fight high inflation caused by an overheated economy and the era of cheap money that fuelled the tech industry came to an end. The RBC curse seemed to have struck again and it seemed that Shopify was bound to go down as just the latest victim.
Shopify’s return
Yet its crash from 2021 highs was not to be the end of the story of Shopify. As I type this, it is January 2025 and Shopify’s story is not over. In fact, the company appears to be back stronger than ever. The value of the company sits at around CAD $200 Billion compared to the value of RBC, which is around CAD $250 Billion. The company appears set to grow to overcome RBC as the largest public company in the Canadian economy. Perhaps the crash was all that the company needed to shake off the RBC curse and realign itself to take the top spot in Canada? Or, perhaps this is just another momentary challenge and one more data point to keep the story of the RBC curse alive a bit longer.
Could this mark a regime shift in Canada?
Okay, if this sounded a bit like I was trying to make the market valuations of companies in Canada feel a little bit like a horse race, a little bit more exciting than numbers and charts, I’m guilty as charged. It’s fun to think that there could be something like a curse that all companies that overtake The Royal Bank as largest public company in Canada are doomed to failure.
Sadly, for writers like I, there is no curse and this is just an interesting way to look at a handful of snapshots of the Canadian marketplace. Companies grow, mature, and decline. Sometimes this happens over many decades, and sometimes it happens rapidly. However, what is a truly interesting view is that should Shopify grow to become the largest public company in Canada and sustain that level, this could usher in a change in the economy itself. For many, many years, Canada’s economy has vacillated between that of a petro-state, its success intimately linked to the world price for oil, and that of a haven for international money to be parked in real estate and financed by a small club of banks that are referred to as “the big 5”.
Canada’s economy has struggled with diversification for decades and perpetually lagging productivity in the country continues to worsen. Perhaps this is just hope? Hope that Canada can transform from an economy that solely pulls minerals from the ground, cuts trees from the forest, and sells them abroad. There is certainly nothing wrong with any of those industries and they are absolutely a necessary part of the economy. However, Shopify gives me hope as a Canadian, that innovation is part of who we are and we can diversify the economy into one that isn’t eternally dominated by banks.