Shopify (NYSE:SHOP)
After reaching an all-time high in November, Shopify (NYSE:SHOP) shares fell by over 80%. Once a hot investment, the Canadian e-commerce services provider has seen its growth slow in the post-lockdown market, and the bulls have since fled the company. Interest rate hikes contributed to the severity of the downturn.
But now that Shopify has lost all the ground it made before the outbreak, is it a good investment? We need to reevaluate the company to see if it’s too late to invest in its stock or if it represents a compelling turnaround opportunity.
Unique Features That Set Shopify Apart.
Online retailers may open and run their own shops on the Shopify platform, complete with the ability to accept payments, ship products, and track the success of advertising initiatives. It facilitates the creation of an independent online storefront for businesses, saving them the trouble of signing up with an already busy marketplace like Amazon (NASDAQ:AMZN) or eBay. Shopify has transformed its once-niche business into the mainstream over the past decade.
In 2015, when it went public, Shopify had 162,261 customers. There are now “millions” of retailers it supports throughout the globe. At a CAGR (compound annual growth rate) of 68%, its yearly revenue rocketed from $205 million in 2015 to $4.61 billion in 2021. Moreover, GAAP (generally accepted accounting standards) results showed profitability in 2020 and 2021.
Shopify’s growth, according to the bulls, will continue because retailers aren’t willing to give in to Amazon and the other mega-e-commerce platforms. Some analysts think the company can secure client loyalty and retention by combining its Shop Pay payment system, specialized fulfillment network, and in-house point-of-sale (POS) technologies.
In addition, they will mention that, at less than six times this year’s sales, Shopify stock is historically cheap. Its share price in November 2017 was 35 times its expected revenues in 2021.
Negative Aspects of Shopify That Are Difficult to Ignore
As more stores and customers moved their operations online in 2020 because of the pandemic, Shopify saw an increase in GMV, GPJ, and revenue. Consumer spending was boosted by stimulus payments as well. As the tailwinds from the epidemic era dissipated, Shopify’s growth slowed last year, and this trend continued into the first half of 2022.
According to projections made by industry experts, Shopify’s sales will increase by 19% for the full year and by a further 25% to $6.87 billion in 2023. Although those numbers are impressive, they show that Shopify’s period of “hypergrowth” is ending.
Shopify (NYSE:SHOP) gross margins fell as the proportion of its sales coming from the lower-margin Merchant Solutions division increased as its growth slowed. As investments in logistics, R&D, analytics, sales, and marketing this year, operating margins also fell.
After spending $2.1 billion to acquire fulfillment technology vendor Deliverr, it anticipates that pressure will persist in the second half of 2018.
Because of this, experts predict that Shopify will continue to lose money in 2022 and 2023 and will be unable to turn a profit until at least 2024. Due to its declining growth and mounting losses, Shopify is a risky investment as interest rates rise.
Keep Looking for Other E-commerce Stocks to Invest In
Shopify (NYSE:SHOP) thrived during the pandemic, but its prospects afterward are uncertain. Its price-to-sales ratio isn’t that low compared to its industry peers, and it still faces competition from similar e-commerce service platforms, including BigCommerce (BIGC), Adobe’s (ADBE), Magento, and Amazon’s Selz.
For instance, although trading at only four times this year’s sales, the Latin American e-commerce giant MercadoLibre (MELI) is growing faster than Shopify and boosting its gross and operational margins. BigCommerce is anticipated to have more sales growth than Shopify this year, but it trades at less than five times that prediction.
In light of these parallels, it is definitely not too late to invest in Shopify (NYSE:SHOP). Potential buyers should hold off until the stock price falls much further.
Featured Image: Megapixl @Pnatthapon
Author Shariq Khan 