The Canadian e-commerce giant, Shopify, which boomed during the coronavirus pandemic came crashing down soon after restrictions were lifted globally. Amid deteriorating market conditions, Shopify stock lost 75 percent of its value in the last 12 months. If the downfall of macroeconomic conditions doesn’t stop, it would possibly hurt Shopify further. Last month, the company informed its investors that sales will continue to weaken in the second half of 2022 as people are reducing their expenditure.
Crisis After Exponential Growth
Shopify witnessed roaring success during the pandemic when its sales sky-rocketed to 86% in 2019-2020 and another 57% in 2021. However, the growth was short-lived as the Ottawa-based company feared slower revenue growth due to the waning pandemic boom. During the recent quarter which ended on June 30, sales increased only 16 percent. The company was also affected by three cents a share loss on an adjusted basis. Meanwhile, market experts and analysts forecast 19% revenue growth for the fiscal year which will end in December.
Also Read: Shopify Stock Price Plummets 17% After Layoffs Announcement
To survive the current market conditions, Shopify cut around 10 percent of its workforce in July. Chief Executive Officer Tobi Lutke acknowledged that the company’s decision to expand swiftly during the pandemic era wasn’t the right move.
“We bet that the channel mix–the share of dollars that travel through e-commerce rather than physical retail–would permanently leap ahead by five or even ten years [due to the pandemic]. It’s now clear that the bet didn’t pay off. What we see now is the mix reverting to roughly where pre-Covid data would have suggested it should be at this point,” Lutke wrote on the company’s website.
Building companies comes with high highs and low lows. Today I had to share some sad news with Shopify. https://t.co/gNO37lWYpg
— tobi lutke (@tobi) July 26, 2022
A Buying Opportunity: Why?
These recent developments point out the drastic change in the growth outlook of Shopify. The stocks that witnessed 350% gains during the pandemic have also lost momentum. Hence, the current stock price offers long-term investors an entry point into the e-commerce company that has established a strong foothold since its 2015 IPO.
The Core Strength
The core strength of Shopify is that it allows merchants to concentrate on their business by freeing them from the hassles of managing an online store. From data backup to hardware security and payment processing, all the aspects of business are managed by the platform and that too in a cost-efficient way. As e-commerce continues to gain more market share from brick-and-mortar retailers, there is less possibility that Shopify’s proficiency will lose its demand.
As per Morgan Stanley, the e-commerce market has a plentiful opportunity to thrive and can increase from $3.3 trillion to $5.4 trillion in 2026. Though current stock valuations don’t reflect growth, the e-commerce market rise will likely continue. Hence, this offers a great opportunity for investors to gain across multiple businesses, verticals and regions.
Expansions And Acquisitions
Deliverr
Meanwhile, the company is also making effort to position itself as an important player by making several acquisitions and globally expanding its capabilities. Last month, Shopify, whose merchants account for 10% of total U.S. e-commerce sales, completed the acquisition of Deliverr. The $2-billion acquisition of the San Francisco-based data provider aims at competing with Amazon.com and giving its merchants a one-stop shop for all their logistics needs.
Shopify Capital
Recently, Shopify announced the launch of Shopify Capital in Australia. This is the fourth market for Shopify Capital after the United States, Canada and the United Kingdom. Small business owners in Australia can access up to $2.5 million AUD directly through its platform. Announcing the same, the company mentioned on its website, “Today, almost 40% of Australian merchants on Shopify sell internationally through features like Shopify Markets, and access to working capital through Shopify Capital now gives merchants greater scope to build their brand both here and internationally”.
Tui Allen, Shopify’s head of product for capital lending and financial services, said, “We are embedding capability directly where merchants are running their shop. Banks don’t have the insight we have. We are expanding the service, so it’s about not just running your shop but your entire business on Shopify, including the financial components. We have a significant depth of fintech capability and continue to expand those across the platform”.
Shopify Collabs
Besides this, Shopify also rolled out “Shopify Collabs” to establish itself as a go-to platform for content creators. Shopify Collabs aims to directly connect merchants and creators on its platform. The latest offering will help creators discover and partner with brands and be financially independent.
“For Shopify merchants, Collabs is a new way to find potential customers at a time when it’s never been more difficult or expensive. By giving merchants the ability to discover and partner with creators that align with their brand, they can tap into the power of community-driven commerce to reach consumers in new and meaningful ways,” said Amir Kabbara, Shopify’s director of Product.
merchants
— Shopify (@Shopify) August 16, 2022
the Shopify Collabs app gives you access to a new sales channel to connect with customers through a creator’s community. you can discover, build and manage a roster of creators to help drive sales and reach your goals together. https://t.co/SiG7nPbnXn pic.twitter.com/Dds00UyWNt
Atlantic Equities’ Note
In a recent note, while upgrading SHOP, Atlantic Equities said that the company’s stock has upside as investors priced in recession expectations. “E-commerce is reaccelerating as reopening headwinds stabilize, and secular tailwinds return as the primary growth driver. Although inflation and recession headwinds could increase, estimates now generally assume further moderation in underlying growth despite signs of stability. Shopify remains a high-quality market share gainer, and we now see upside to estimates following the recent reset, so we are upgrading the stock to Overweight,” the note states.
Conclusion
As Shopify battles with a tough macroeconomic backdrop this year, stocks are likely to remain under pressure. Having said that, there’s no doubt that its solid track record offers long-term investors a golden opportunity to hold a position in the company.
Disclaimer: This is not an opinion or advise on Shopify stock. Users must take caution before investing.
