Shopify Stock Rise 18% to $54 pre-market. It seems after the morning star signal, trend begin to reverse.
Shopify is a Canadian multinational e-commerce company that provides a cloud-based, multi-channel commerce platform for small and medium-sized businesses. It offers a suite of services that allow merchants to set up their online stores, manage their inventory, process payments, and ship their products.
Shopify went public in 2015 and has since become one of the most popular e-commerce platforms in the world. The company has over 4.5 million merchants using its platform, and it processed over $5.6 billion revenue in 2022.
Shopify’s stock has been on a tear in recent years, and it is now one of the most valuable companies in Canada. The stock is up over 1,600% since its IPO, and it is currently trading at over $47 per share.
Bulls
1. Shopify is attractive to small and medium-sized businesses because it is easy 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. Shopify also benefits from a large referral and developer ecosystem.
2. Shopify is also benefiting from the growth of e-commerce. The global e-commerce market is expected to grow to over $5 trillion by 2025, and Shopify is well-positioned to capture a significant share of this growth. Shopify has seen strong growth in the past and is expected to continue growing in the future. This is due to the company’s robust new merchant additions, increasing GMV ($197billion GMV), and high attach rates.
Bears
1. Shopify is exposed to the economic cycle, as its core small and medium-sized business customers are more likely to fail during a recession. This is exacerbated by the fact that retail volumes would likely decline during a recession. Additionally, Shopify’s management has a strategy of avoiding direct-to-consumer sales, which could limit its growth potential during a recession.
2. The build-out of Shopify’s Fulfillment Network will require a significant investment in both financial and management resources. This could be a distraction for management and could also lead to higher costs, which could weigh on Shopify’s profitability.
3. The company is facing increasing competition from other e-commerce platforms, such as Amazon and Etsy.
According to Morningstar analyst, Shopify’s fair value is estimated to be $45 per share, which implies an enterprise value/sales multiple of 8 times this year’s revenue and a negative 1% free cash flow yield. The forecast includes a continued shift to merchant solutions from subscriptions. Total revenue is expected to grow at a compound annual growth rate of 22%.
Revenue growth will be driven by new merchants on the platform, uptake of the Shopify Fulfillment Network, Shopify Payments, Shopify Shipping, and Shopify Capital, growing gross merchandise value on the platform, and international expansion. The introduction of unspecified new merchant solutions over time, such as more financial-related services, is also assumed, although this is not thought to be a critical factor over the next several years. The failure rate is expected to remain high on the SMB side, but also that successful merchants will grow to become Shopify Plus enterprise customers. Gross margins are expected to increase over time once the fulfillment network is scaling and contributes to leverage on operating expenses in the long-term after pressure over the next few years. Thus, the non-GAAP operating margin estimate expands from 0% in 2022 (actual) to 11% in 2027.
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