Shopify ( STORE -4.37% ) remains one of the worst performing stocks in the tech sector. Stocks have fallen more than 65% in 2022, are down 73% from last November’s all-time high, and they’re down 20% in the past week alone.
Despite serious long-term growth opportunities, the e-commerce platform provider continues the long and steady decline that even failing to announce it would split its shares could come to a very long halt.
Is there still something wrong with Shopify, or is the e-commerce platform provider a buy at these discounted prices? Let’s dig.
Make the best of a bad situation
Shopify has become the go-to platform for anyone looking to establish an e-commerce presence. Providing an entrepreneur with an easy way to monetize their website, Shopify has grown rapidly throughout the pandemic as locked down individuals have struck out on their own to build their own businesses.
Yet that’s also why Shopify’s stock is down. The market has turned against it because the meteoric growth it achieved by providing back-end solutions to so many people at the height of the COVID outbreak is now expected to slow significantly with a reopened economy. Even Shopify admits it.
During her fourth quarter earnings conference call, Chief Financial Officer Amy Shapero told analysts that the first quarter of last year was the biggest period of growth in the company’s history, with revenues in up 110% year over year. The lockdowns, coupled with the government handing out stimulus checks, are making it impossible for the business to grow.
Additionally, Shopify has eliminated the revenue share component for app and theme developers for the websites they help build. Previously, Shopify took a percentage of the first $1 million in developer revenue, but that’s gone now, even though it makes the company more attractive to developers.
This will also translate to more revenue from its merchant solutions business than its subscription solutions business, meaning that gross profit dollar growth will follow revenue growth. But it also means that more traders will join the platform and use its services more as it becomes more vertically integrated.
Change your job for the better
Shopify has a lot of new irons in the fire, launching merchant money management accounts, a small business loan store, and a fully-hosted enterprise e-commerce platform for fast-growing brands. It will offer non-fungible tokens, or NFTs, to help businesses and brands better connect with customers and is building more warehouses so products can be delivered to customers faster.
All of this will have the effect of lowering the results of the first half – especially the first quarter – compared to last year until he overcomes these events and the new strategies he has implemented begin. to intensify in the second half of 2022.
While this may see Shopify’s stock see further weakness, investors should view it as a buying opportunity. Growth may be slowing from the record results it posted, but the e-commerce platform provider is still growing, and growing fabulously.
Fourth-quarter revenue north of $1.3 billion was 41% higher than the year-ago quarter and 173% higher than in 2019, when revenue hit $505 million, an increase 47% year over year. So while Shopify expects Q1 to be lower than last year (which was up 57% at the time), it expects Q4 sales to be higher.
Price is what you pay, value is what you get
These growth rates remain phenomenal, and even Wall Street sees enormous potential in them. Revenues are expected to more than triple to over $18.7 billion by 2026, and earnings are expected to increase eightfold to well over $22 per share.
That doesn’t make its stock look discounted today by traditional metrics like price-earnings ratio, sales, and free cash flow it produces, where it goes 21, 13, and 139 times, respectively. , but it’s a company still in its early stages of growth. Any chance investors have of acquiring what is truly a cheap, market-based tech stock that expects the worst should be considered a must-watch moment.
This article represents the opinion of the author, who may disagree with the “official” recommendation position of a high-end advice service Motley Fool. We are heterogeneous! Challenging an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and wealthier.