Down 50% Off Highs, Shopify Stock Looks Cheap

Shopify stock (NYSE: SHOP) has declined by almost 35% year to date, considerably underperforming the broader Nasdaq-100, which has declined about 8% over the same period. The stock is also down by about 48% off all-time highs seen in early November, trading at levels of around $885 currently. So what’s really changed for Shopify? With interest rate hikes on the horizon and monetary policy set to get tighter, investors are reducing exposure to high-growth, high multiple stocks, and this is hurting Shopify, which traded at close to 38x forward revenues at its peak. Moreover, e-commerce stocks, in general, have been faltering, as revenue growth cools as spending in brick-and-mortar stores rises with Covid restrictions easing. For instance, in Q3 2021, Shopify’s sales growth rates roughly halved to 46% from around 96% in the year-ago quarter. Separately, mixed quarterly results and tough earnings guidance from payments major PayPal (NASDAQ:PYPL) – whose fortunes are heavily levered to the e-commerce market – also appear to be rubbing off on Shopify stock.

While we are reducing our price estimate for Shopify from around $1,300 to about $1,100, to account for potential headwinds to the company’s growth and margins in the near term, we still remain bullish on the stock with our estimate standing at about 25% ahead of the current market price. While Shopify stock currently trades at over 115x our projected 2022 earnings for the company, the company’s growth rates, and long-term opportunity, more than justify its high multiples. The global e-commerce market is growing at a rapid clip, with retail e-commerce sales on track to rise from around $4.92 trillion in 2021 to about $7.4 trillion in 2022, per eMarketer. Shopify should be a prime beneficiary of this growth, as it provides the go-to product suite of software and analytics tools for businesses that want to go online without using platform majors such as Amazon. Shopify is also viewed as a merchant-friendly alternative to e-commerce behemoth Amazon, which is perceived to be competing with sellers who use its marketplace. See Shopify Valuation: Is SHOP Stock Expensive Or Cheap? for more details on Shopify’s valuation and Shopify Revenue for more details on the company’s revenue streams and how they are trending.

Below you’ll find our previous coverage of Shopify stock where you can track our view over time.

[1/5/2022] Despite Recent Headwinds, Shopify Stock Looks Like A Buy At $1,220

Shopify stock (NYSE: SHOP) has declined by almost 28% since mid-November, trading at levels of around $1,220 currently. In comparison, the S&P 500 was up by about 2% over the same period. The sell-off comes as Shopify’s growth cools after witnessing a big surge earlier in the Covid-19 pandemic. For example, gross merchandise values, an indicator of the total value of products sold via Shopify customer websites, grew by about 35% year-over-year in Q3 2021, compared to a growth rate of 109% over Q3 2020. Separately, with the Federal Reserve outlining the possibility of as many as three interest rate hikes over the next year, high-growth, high-multiple stocks have seen some selling pressure. Moreover, the ongoing supply chain issues and rising material costs following the Covid-19 re-opening are also seen as being a drag on the businesses of Shopify’s smaller customers and this has also likely hurt the stock.

So is Shopify stock a buy at current levels? While Shopify trades at a high multiple (over 160x our forward earnings estimate), we think the company should grow into this valuation in the long run. The global e-commerce market is growing at a rapid clip, with retail e-commerce sales on track to rise by close to 17%, to levels of around $4.92 trillion, per eMarketer. Shopify should be a prime beneficiary of this growth, as it provides a suite of software and analytics tools for businesses that want to go online. Shopify is also viewed as a merchant-friendly alternative to e-commerce behemoth Amazon, which is perceived to be competing with sellers who use its marketplace. Besides Shopify’s core e-commerce tools, other products and services are also poised to gain traction. For example, Shopify has been expanding its fulfillment network, while also doubling down on payment and financing services for merchants. Shopify processed payments for close to half of its GMV over Q3 2021, up from around 45% in 2020. Shop Pay could become a relatively lucrative revenue stream as the company charges as much as 2.9% of every sale plus $0.30 per transaction. We value Shopify stock at about $1300 per share, about 7% ahead of the current market price. See Shopify Valuation: Is SHOP Stock Expensive Or Cheap? for more details. Check our theme of E-commerce Stocks for a complete list of companies that stand to benefit from the pivot toward online shopping.

Below you’ll find our previous coverage of Shopify stock where you can track our view over time.

[12/14/2021] Should You Buy Shopify Stock At $1,400?

Shopify stock (NYSE: SHOP) has declined by almost 16% over the last month, considerably underperforming the S&P 500 which has remained roughly flat over the same period.  The decline comes as investors increasingly move out of high-growth software stocks and pandemic winners, amid soaring inflation and a strong chance of interest rate hikes next year. Moreover, Shopify’s growth momentum appears to be slowing. For instance, over Black Friday, Shopify said that its merchants saw sales growth come in at about 21% year-over-year. While this number is respectable, considering that online retailers began shopping events earlier than usual this year, while also facing supply chain constraints, it is notably lower than the 75% growth the company saw in 2020 and the 100% plus growth levels seen in 2019. Shopify is also investing to improve its merchant services business and this could also put some pressure on its margins – which are already lower than rivals such as Amazon – in the near term.

Overall, we think Shopify stock still looks a bit pricey at current levels of around $1,400 per share, trading at about 215x forward earnings. This is ahead of our fair value estimate of $1,300 per share for Shopify. However, this is probably a premium that investors are willing to pay for the quickly growing company, which has proved to be a big innovator in the e-commerce market. See our interactive analysis Shopify Valuation: Is SHOP Stock Expensive Or Cheap? for more details. Check our theme of E-commerce Stocks for a complete list of companies that stand to benefit from the pivot toward online shopping.

[11/10/2021] Up 15% Over The Last Month, What’s Next For Shopify Stock?

Shopify stock (NYSE: SHOP) has rallied by about 15% over the last month, outperforming the S&P 500 which was up by about 7.5% over the same period. There are a couple of factors driving the gains. Firstly, there has been a broader rally in software and tech stocks following the late September sell-off. Shopify also published its Q3 2021 earnings late last month, indicating that its momentum in the e-commerce space was holding up, with sales rising by about 46% from a year ago, although it fell slightly short of estimates. Shopify also recently partnered with Microsoft and Oracle to offer enterprise resource planning (ERP) tools on the Shopify app, giving customers a unified system that connects the e-commerce platform with financial and inventory data.

Now, is Shopify stock poised to grow? Based on our machine learning analysis of trends in the stock price over the last six years, there is a 69% chance of a rise in SHOP stock over the next month (about twenty-one trading days). See our analysis on Shopify Stock Chance of Rise for more details.

Five Days: SHOP 5.3%, vs. S&P 500 1.2%; Outperformed market

(30% Event Probability)

• Shopify stock rose 5.3% over a five-day trading period ending 11/9/2021, compared to the broader market (S&P500) which rose 1.2%.
• A change of 5.3% or more over five trading days has a 30% event probability, which has occurred 490 times out of 1624 times in the last six years.

Ten Days: SHOP 14%, vs. S&P 500 2.5%; Outperformed market

(12% Event Probability)

• Shopify stock rose 14% over a ten-day trading period ending 11/9/2021, compared to the broader market (S&P500) which rose 2.5%.
• A change of 14% or more over ten trading days has a 12% event probability, which has occurred 198 times out of 1619 times in the last six years.

Twenty-One Days: SHOP 15%, vs. S&P 500 7.5%; Underperformed market

(28% Event Probability)

• Shopify stock rose 15% over a twenty-one-day trading period ending 11/9/2021, compared to the broader market (S&P500) which rose by 7.5%.
• A change of 15%or more over twenty-one trading days has a 28% event probability, which has occurred 443 times out of 1608 times in the last six years.

Check out our theme of E-commerce Stocks for a complete list of stocks that stand to benefit as retail increasingly shifts online.

[9/22/2021] What’s Happening With Shopify Stock?

While Shopify stock (NYSE: SHOP) has rallied by over 30% year-to-date, it has largely traded sideways at levels of roughly $1,450 since June 2021. Although demand for the company’s software and services remains strong, with Shopify revenues beating expectations yet again over Q2 2021, e-commerce stocks, in general, have been mixed performers in recent months, as the re-opening of the physical economy following the Covid lockdowns is reducing investor interest in online retail.

Now, there have been some positive developments for Shopify, such as its deal with TikTok that enables businesses to create digital storefronts on the TikTok app, while enabling consumers to buy products directly. However, other companies are also looking to take on Shopify in the fast-growing e-commerce solutions space. For instance, creative software behemoth Adobe says that it will add payment services powered by the PayPal Commerce Platform to Adobe Commerce, its merchant e-commerce platform. Adobe already provides software that helps retailers create and manage online stores and the new payment system could enable it to better compete with Shopify. Amazon is also looking to take on Shopify by developing its own point-of-sale system that will apparently process transactions online and in physical stores.

Overall, we think Shopify stock still looks a bit pricey at current levels of around $1,450 per share, trading at about 240x forward earnings. This is ahead of our fair value estimate of $1,300 per share for Shopify. However, this is probably a premium that investors are willing to pay for the fast-growing company, which has proved to be a big innovator in the e-commerce market. See our interactive analysis Shopify Valuation: Is SHOP Stock Expensive Or Cheap? for more details.

[6/18/2021] Is The Recent Rally In Shopify Stock Justified?

Shopify stock (NYSE: SHOP) gained about 17% over the last five trading days and remains up by a solid 28% over the past month, rising to about $1,450 per share, outperforming the S&P 500 which has returned just about 2% over the past month. The rally was driven by multiple factors including the recent expansion of Shopify’s Shop Pay payment system to all merchants on Facebook and Google, upgrades by multiple brokerages, and higher interest in the stock following Shopify’s stronger than expected quarterly earnings published in late April.

So is Shopify stock still a buy after the recent rally? Shopify certainly has a lot going for it. The Covid-19 pandemic has accelerated this shift to e-commerce, and Shopify – which provides small and medium businesses the software tools and services they need to go online – has emerged as a major beneficiary. Over Q1 2021, Shopify more than doubled its revenues and grew its adjusted EPS by almost 10x versus the previous year, and revenue growth is projected at over 50% this year. Longer-term growth should also hold up, as Shopify expands its merchant services such as payments, merchant financing, fulfillment, and point-of-sale systems. The company is also seen as a merchant-friendly alternative to e-commerce behemoth Amazon, which is perceived to be competing with sellers who use its marketplace. That said, we think Shopify stock looks a bit pricey at current levels of around $1,450 per share, or about 330x forward earnings. This is ahead of our fair value estimate of $1,300 per share for the stock. However, this is probably a premium that investors are willing to pay for the fast-growing company, which has proved to be a big innovator in the e-commerce market. See our interactive analysis Shopify Valuation: Is SHOP Stock Expensive Or Cheap? for more details.

[5/26/2021]  Why Shopify Stock Will Trend Higher Still

Shopify stock (NYSE: SHOP) gained about 9% over the last week (five trading days) rising to about $1,240 per share, outperforming the S&P 500 which was up by 2% over the same period. Although there hasn’t been much news specific to the company over the last few days, the software and technology space, in general, has seen renewed investor interest, with the Nasdaq up by about 4% over the last week, amid lower than expected jobless claims and cooling inflationary pressures. So is Shopify stock still a buy after the recent rally? We think so, and value Shopify stock at about $1,300 per share. See our interactive analysis Shopify Valuation: Is SHOP Stock Expensive Or Cheap? for more details.

Although Shopify stock currently trades at a relatively lofty 280x forward earnings and 33x forward revenues, we think the stock is still worth considering. E-commerce sales should continue to grow quickly at the expense of physical store sales, as consumer behavior is likely to have undergone a significant shift through Covid-19, and Shopify, with its highly scalable business model, should be a prime beneficiary as more small businesses go online. Shopify is also well placed versus rivals. The company is positioning itself as a merchant-friendly alternative to Amazon, which is perceived to be competing with sellers in its marketplace. Shopify’s product is also viewed as superior and more comprehensive compared to the likes of Wix and Squarespace and its business is also growing faster. Shopify is also expanding to offer additional services including payments, shipping, merchant financing, and point-of-sale systems. Shopify’s revenues are likely to grow by about 52% this year, per consensus estimates.  Considering this, we think it’s quite likely that the company will continue to generate returns for shareholders.

[5/3/2021]  Shopify Stock Updates

Shopify stock (NYSE: SHOP) is up by about 9% over the last week (five trading days) outperforming the S&P 500 which is down by about -0.3% over the same period. The recent surge in the stock comes as the e-commerce software provider delivered a solid set of Q1 2021 earnings, with sales more than doubling year-over-year to $989 million, with its adjusted EPS standing at $2.01, roughly 3x the consensus estimates. So is Shopify stock poised to rise further or could it see a decline? Per our machine learning engine, which analyzes historical stock price data, Shopify stock has a 58% chance of a rise over the next one month (21 trading days) after gaining almost 9% in the last five trading days. The one-month expected return for the stock is 3.5%. See our analysis Shopify Stock Chances of Rise for more details.

So what’s the outlook like for Shopify? Now, Shopify’s Q1 results were much stronger than expected, as the latest round of government stimulus, which ended in early April, helped bolster gross merchandise values that, in turn, drive Shopify’s merchant solutions revenue. However, growth is likely to slow a bit in the coming quarters, as the Covid-19 pandemic recedes, and consumer spending in brick and mortar stores likely picks up. That being said, the longer-term outlook for the company looks good, in our view. E-commerce sales should continue to grow quickly at the expense of physical store sales, as consumer behavior is likely to have undergone a significant shift through the pandemic, and Shopify, with its highly scalable business model, should benefit as more small businesses go online. Moreover, the company is positioning itself as a merchant-friendly alternative to Amazon, which is seen as competing with sellers on its platform. Shopify’s revenues are likely to grow by over 50% this year, per consensus estimates.  Considering this, we think it’s quite likely that the company will generate continued returns for shareholders, although the rate of returns is likely to diminish considerably given the company’s high valuation (about 280x forward earnings).

[2/10/2021] What’s Driving Shopify Stock?

Shopify (NYSE: SHOP) stock has rallied by about 30% year-to-date, and the stock has jumped almost 3x over the last 12 months. There are a couple of trends driving the recent rally. Firstly, analysts and investment managers have been increasingly bullish on the stock, despite its high valuation, citing Shopify’s sizable market opportunity. Secondly, Shopify said that it would be extending its payments service Shop Pay for transactions on Facebook and Instagram, marking the first time the tool is available outside the e-commerce stores of Shopify merchants. Facebook, with over 1.8 billion daily users, should be a sizable market for Shopify’s growing payment service.

Now are further gains in the cards for Shopify, after this big rally? Shopify trades at a relatively steep 45x consensus 2021 revenue, but it is growing quickly, with sales likely to expand by 34% year-over-year in 2021. In comparison, Etsy, an online marketplace targeted at small and home-based businesses, trades at a more reasonable 16x projected 2021 revenues, consensus estimates peg growth at just about 12% for this year. If Shopify is able to sustain its high growth, considering the quickly growing e-commerce market, and its focus on small businesses, it should be able to drive further returns for investors, although the rate of returns is likely to diminish considerably given the company’s already high valuation. See our analysis Why Shopify Stock Moved 14x since 2017 for a closer look at what’s driven Shopify’s stock in recent years.

[1/19/2021] Are Further Gains Around the Corner

Shopify (NYSE: SHOP), a technology company that helps businesses get online by setting up e-commerce websites and handling related services, has seen its stock price rise by about 2.6x over the past 12 months. The stock is also up by almost 11x since the end of 2017. The Covid-19 pandemic has helped accelerate Shopify’s business, as customers increasingly turned to the Internet to buy things with more small businesses also investing in building online stores using Shopify’s solutions. For perspective, the number of new businesses on Shopify’s platform shot up 71% year-over-year in Q2 alone. Are further gains in the cards for Shopify stock or are the recent trends priced-in the stock for the near-term? Let’s take a look at what’s driven the gains in Shopify’s stock price in recent years and what the outlook for the company could be like. See our dashboard analysis on Shopify Stock Grew Over 10x Since 2017. Here’s How. for a detailed overview of how Shopify’s Revenues and multiple have changed in recent years.

What Has Driven Shopify Stock Price In Recent Years

Shopify has two revenue streams – namely Subscriptions, which gives users access to its e-commerce platform and tools, and Merchant Services which include payments, shipping, and financing. Shopify’s Revenues have grown from about $673 million in 2017 to about $2.46 billion in the last 12 months, marking a growth of about 265%. While Shopify’s Subscription Services expanded by about 37% over the last 12 months, Merchant solutions Revenue almost doubled, as Gross Merchandise Volume – which is essentially the total dollar value of orders facilitated through the Shopify platform – continued to soar, with the share of payments processed by Shopify also rising. Shopify’s Revenue per Share has grown at a slightly slower pace compared to Revenue, rising by about 184% since 2017 to about $20 per share, on account of a slightly higher share count. However, investors have valued Shopify more richly, with its P/S multiple rising from around 17x in 2017 to 30x in 2019 and 58x in 2020. Shopify’s higher valuation has come partly due to stronger recent growth, higher valuations for equities, in general, and increasing investor interest in the stocks of asset-light companies with growing revenue streams.

Are More Gains In The Cards For Shopify Stock?

Shopify’s Revenue is expected to grow by 80% in 2020 (up from around 48% last year) per consensus figures to about $2.85 billion, driven by Covid-19 related demand for its subscription and merchant services. Further, per consensus, Revenues are likely to grow to about $3.8 billion next year. This means that the company trades at about 38x projected 2021 Revenues. Can Shopify sustain its growth and eventually drive further gains for investors? Shopify’s addressable market is growing quickly as more businesses move online and the company’s offering is also highly scalable, enabling it to acquire customers seamlessly.  Moreover, the company is positioning itself as a merchant-friendly alternative to Amazon, which is seen as competing with sellers on its platform. Shopify is also moving into the fulfillment market, while also offering financing and payment solutions. Considering this, we think it’s quite likely that the company will generate continued returns for shareholders, although the rate of returns is likely to diminish considerably given the company’s already high valuation.