Editor's Note: All images are courtesy unsplash.com and AP Images.
Key Takeaways for Shopify Stock:
- Shopify leapt to the top of the leaderboard for Canadian stocks in our coverage universe. Third-quarter revenue came in higher than our above-consensus expectations on a combination of growth avenues at the company.
- Investors should consider whether the improvements such as lower expense levels will become the new baseline after recent changes like a headcount reduction and disposition of the logistics business.
- Shopify shares still have a long way to go to return to 2021 levels, but top-line multi-prong growth strategies could make it happen in the long run.
Andrew Willis: If you haven’t seen it, or weren’t lucky enough to buy Shopify SHOP stock around the end of October this year – then you missed one major rally.
Soaring around 50% since its earnings at the beginning of November, the value of Shopify shares has come a long way from the depths of last year – when worries about the end of the pandemic e-commerce boom met economic uncertainty and lower consumer spending.
As often happens in stock markets, however, peak fear may have turned into a price floor for Shopify stock around a year ago. Today the company is reporting revenue up 25% year over year, it’s embarking on a multi-prong strategy that includes products for brick-and-mortar stores, and it’s expanding its product line to new international markets. So is Shopify back? It depends…
Shopify Costs are Good, but the Growth is Great
If you bought Shopify at any point in 2021… that’d be a ‘no’ on a break-even. And besides, recently reported figures like gross profits up 36% should be taken with a grain of salt. A dramatic increase in profitability in the near term after headcount reductions, price increases and disposition of unprofitable businesses was expected by senior equity analyst Dan Romanoff, who therefore is only slightly increasing his profitability estimates and currently sees the stock as fairly valued. At the same time, on the top line, we’re also seeing some more incremental and potentially long-term trends like good merchant growth, merchant solutions and very good performance offline and in Europe.
Shopify might not revive its former hype in 2024, and the business still has to contend with a potential recession – but it could offer the kind of long-term growth that has you buying when others are selling.
For Morningstar, I’m Andrew Willis.
Shopify Bulls Say
- Shopify’s growth has been strong and is expected to remain so, with robust new merchant adds, increasing GMV, and high attach rates.
- We believe Shopify is attractive for SMBs because it is simple to use and has a wide variety of built-in features that make it a turnkey solution.
- The company has many experts to help SMBs with website design, photography, and other elements of the process and benefits from a large referral and developer ecosystem.
Shopify Bears Say
- Shopify has traded at lofty valuations at times, and while it might continue to generate strong growth, the company may still fail to live up to optimistic assumptions embedded in the share price.
- Shopify is overexposed to the economic cycle, with the high failure rate for core SMB customers exacerbated by the fact that retail volume would likely decline in a downturn. Additionally, management’s strategy is to avoid going direct to consumers.
- The buildout of the Shopify Fulfillment Network will require substantial investment in both financial terms and management resources.
Image credit: Associated Press
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