Stock of the Week: Shopify

Has e-commerce already peaked?

Andrew Willis 16 May, 2022 | 4:28AM
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Andrew Willis: We’re bullish on e-commerce over the long run, but the most recent results from Shopify (SHOP) fell short of our expectations. Is this a sign of weakness? Is the online market softening? Or is Shopify expanding in a more hybrid online-offline shopping environment?

A couple of months ago, we cut the company some slack since it’s in the midst of a shift to serve customers in post-Covid times. Physical stores and malls are open again, and the company’s retooling to better serve the merchant side, building out its fulfillment network so that it can better compete on margins and ship like Amazon.

Well, the build-out of the fulfillment network is still underway, but the company lowered its qualitative outlook for merchant additions for the year and stepped up spending in all areas, including sales and marketing. Senior equity analyst Dan Romanoff says the spending drives our fair value estimate lower, and this recent miss on merchant solutions only further increases the uncertainty around this company.

It’s also worth noting, however, that our research suggests that Shopify is the leading platform for small and medium-sized businesses that want to go online, and investments in scale will help drive margins higher.  So it’s possible that this spending is to better secure the market it keeps creating.

For Morningstar, I’m Andrew Willis.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar Rating
Shopify Inc Registered Shs -A- Subord Vtg497.09 CAD5.28Rating

About Author

Andrew Willis

Andrew Willis  is Senior Editor at Morningstar.ca. Follow him on Twitter @AndrewWillisCDN.

 

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