Shopify, company that provides eCommerce software for small businesses, has been on a roller coaster ride this year, with the stock price falling more than 78%. This drop is due to growing concerns about the current state of the economy and how it will affect small businesses. However, Shopify remains one of the best options for small businesses looking to start or expand their online presence. So is this high growth stock a no-brainer buy?
What Makes Shopify Special?
Shopify is one of the leading eCommerce platforms, with over 1.75 million merchants using its platform as of 2022. It offers online stores, retail point-of-sale systems, and payment processing services to small businesses.
These merchants range from solo entrepreneurs to large enterprises such as Tesla Motors and Budweiser. Some notable merchants include Redbull, Whole Foods, Kraft Heinz, Pepsi, Nestle, LVMH, and Tesla.
Shopify has grown rapidly due to its simple and user-friendly platform. The platform allows merchants to create an online store quickly and without technical knowledge. It also offers a wide range of features and plugins that enable merchants to customize their stores to fit their specific needs.
Shopify Has a Boom and Bust History
Shopify was founded in 2004 by Tobias Lutke, Daniel Weinand, and Scott Lake. The company was started in response to the growing trend of online shopping. At the time, most eCommerce platforms were focused on larger businesses. Shopify was one of the first companies to focus on providing an easy-to-use platform for small businesses.
Since 2015 the company has seen consistent revenue growth. In 2021, Shopify achieved its highest annual revenue amount of $4.61 billion, which was a 57% increase from the previous year. SHOP net income for 2021 was $2.95 billion.
Despite this tremendous growth, Shopify experienced its worst year to date in 2022. Net income for the 12 months ending June 30, 2022, was -$1.9 billion. The stock price also dropped significantly, from $135 in September 2021 to a current low of $26, for a 78.66% loss.
Why Did Shopify Drop?
The recent drop in Shopify’s stock price may have some investors wondering if now is the time to buy. Here are some of the factors that may have contributed to the drop:
Concerns about the recession
The current state of the economy has many people worried about a potential recession. With Shopify’s platform focused on small businesses, there is a concern that a downturn will cause many of these businesses to close. In addition, a recession would likely lead to a decrease in consumer spending, which would also impact Shopify’s revenue.
Competition from Amazon
While Shopify is an eCommerce platform, and Amazon is a marketplace, the two companies have a cross-over in terms of their services.
Consumers can buy products from either Shopify merchants or Amazon. Shopify merchants benefit from being able to build their brand and have more control over their customers’ experience.
However, Amazon is a much larger company with a broader range of products. With Amazon’s same-day delivery and Prime membership, they are a strong competitor for Shopify.
Shopify’s quarterly earnings deck is vague
Shopify recently released its quarterly earnings deck, and many investors were concerned about the lack of specifics. Some vital missing metrics include geographic concentration, number of customers, revenue buckets, and retention rates.
To invest in a company, investors need to understand its business model and growth strategy clearly. Without this information, it is difficult to make an informed investment decision.
Is It Time To Buy Shopify?
Despite these concerns, there are many reasons to believe that Shopify is a good investment. Here are some of the reasons why:
Shopify is a market leader
Shopify is the leading eCommerce platform, and it has a strong market position. It is one of the most popular platforms for small businesses and has a growing number of larger companies using its platform.
Shopify is well-positioned for the future of eCommerce
Despite the concerns about the economy and competition, Shopify is still well-positioned for the future of eCommerce.
While online sales may experience a slowdown in a recession, in the long term, eCommerce still has substantial growth potential.
In 2021 global eCommerce sales reached $4.9 trillion. Although those numbers are staggering, what’s more impressive is that they are expected to grow to $7.4 trillion by 2025.
Shopify is technology focused
Shopify is a platform that is designed for the future of eCommerce. Management is investing in new technologies like AR/VR and AI and the company is well-positioned to take advantage of the growing eCommerce market.
Features like Shopify Augmented Reality allow merchants to give their customers a more immersive shopping experience by allowing them to see what products look like in their homes before they buy them.
With a heavy focus on customer experience and technology, Shopify is poised to continue its growth in the eCommerce space.
Final thoughts on whether or not to invest in Shopify stock
Shopify is a market leader with a proven track record of growth. Despite recent concerns, there are many reasons to believe that Shopify is still a good investment option. It is well-positioned for the future of eCommerce and focused on investing in new technologies.
From a discounted cash flow forecast perspective, the share price has 23% upside to $37.82 per share. When the tide turns in the market, this is a hot prospect to keep high on your watchlist radar.