Shopify (NYSE: SHOP) shares have taken a beating since the start of 2022, dropping by 57% amid fears of an ecommerce and in store retail slowdown. The severe drop in the stock’s value might have created a great opportunity to pick up a bargain.
Here, we pick over Shopify’s key information to work out if the stock has much to offer.
What is Shopify?
Commerce giant Shopify was founded in 2004 and is based in Ottawa. The company provides a commerce platform and services in Canada, the US, Europe, the Middle East, Africa, Asia Pacific, and Latin America.
The company’s platform enables merchants to display, manage, market, and sell its products through various sales channels, including web and mobile storefronts, physical retail locations, pop-up shops, social media storefronts, native mobile apps, buy buttons, and marketplaces.
It also sells custom themes and apps, and registration of domain names; and merchant solutions, which include accepting payments, shipping and fulfilment, and securing working capital.
Shopify Financial Metrics Today
Forward P/E: 277.78
Market Cap: $84.55bn
Cash and Cash Equivalents: $2.50bn
Total Current Liabilities: $702.73m
Total Liabilities: $2.20bn
The company is in a slightly strange place when it comes to competition. On the one hand it is reliant on ecommerce like Amazon (NASDAQ: AMZN) and Alibaba (NYSE: BABA).
On the other, the way the company makes money has more in common with website creation businesses like Wix.com (NASDAQ: WIX) or online marketplaces like eBay (NASDAQ: EBAY) and Etsy (NASDAQ: ETSY).
Through its in store payment system offerings, it is also comparable with companies like PayPal (NASDAQ: PYPL) and Nuvei (TSE: NVEI).
This puts the huge drop in the company’s share price in a bit of context. All of these stocks have dropped across the year to date, though surprisingly none has fallen quite so far as Shopify.
Perhaps there is something in the outfit’s most recent earnings that points to why this is.
Shopify’s Most Recent Earnings
Shopify’s fourth quarter revenue of $1.38bn, which represented 41% growth and adjusted earnings per share (EPS) of $1.36 were ahead of analysts’ expectations. These were pushed higher by strong merchandise and payment volume growth.
However, investors were put off by the company’s assertions that sales growth would slow over the coming year.
Shopify cautioned that the first quarter of 2022 would see lower revenue growth as it did not expect the period to feature the same COVID-linked ecommerce boom which impacted results from the year before.
Additionally, the business warned that its commercial initiatives and sales and marketing investments were not anticipated to start influencing results heavily until later in 2022.
Unsurprisingly, investors were not too happy about this warning, with Shopify shares falling in price by almost 20% in the immediate aftermath of the announcement.
Is Shopify a Good Investment?
While it's true that the company warned of a slowdown in revenue growth during the first half of the year, it has indicated that this will be temporary. It seems possible that amid the general decline in share prices since the start of 2022, this whiff of weakness sent investors scurrying for the hills a little too fast.
Indeed, the stock’s value now sits almost back at where it was before the start of the pandemic, which is what kicked off the recent ecommerce boom. This makes the stock seem like a pretty attractive investment.
However, US consumer confidence has just hit an 11-year low and sky-high gas prices are contributing to the already spiralling cost of living. Additionally, interest rates are expected to be given a boost by the Fed.
This does not sound like an environment where huge ecommerce growth or retail success is anything like a certainty, so jumping at the chance to try and buy Shopify stock in the dip might not be the best decision right now.