Shopify stock (NYSE: SHOP) has had a tough year so far, declining by almost 75% since early January as demand growth for the company’s e-commerce software slows, while investors also rotate out of high-multiple stocks amid rising interest rates. For perspective, over Q1 2022, Shopify’s revenue grew by just about 22% year-over-year to $1.2 billion, marking the slowest growth rate the company has seen since it went public, as people increasingly return to physical stores. Moreover, despite slowing growth, Shopify is doubling down on the expansion of its fulfillment network via investments into infrastructure and via the planned acquisition of technology provider Deliverr. The investment plans haven’t gone down well with investors for two reasons. Firstly there are concerns about whether Shopify can truly compete with Amazon, which has a deeply entrenched fulfillment and logistics network. Moreover, the timing of investments is also a concern, as the markets have been increasingly prioritizing cash flows and margins, amid surging inflation and rising interest rates. Separately, Shopify’s recent move to issue a new class of founder shares that will cement CEO Tobi Lutke’s control over the e-commerce company could also be creating an overhang on the stock.
Although there are clearly some headwinds for Shopify, we believe that the stock looks quite attractive at current levels. The stock remains down by about 80% from its all-time highs and now trades at levels last seen in 2019, before the Covid-19 pandemic. The stock currently trades at just over 6x projected 2022 revenue, down from a range of 20x to 40x seen between 2019 and 2021. However, Shopify has actually made considerable progress since then. For perspective, its customer base has risen 2x from pre-pandemic levels and gross merchandise value (GMV) for 2021 stood at a little over $175 billion, making it almost half as large as Amazon’s marketplace. Also, it’s not like Shopify will stop growing. Consensus estimates point to around 25% revenue growth this year. Shopify is also set to split its stock 10-for-1, effective from June 28, and this could also be a signal the company is confident about its future prospects. The near-term headwinds notwithstanding, the shift toward e-commerce is likely to be a largely secular trend, and we think Shopify will remain 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 having to bank on platform players like Amazon.
We value Shopify stock at about $600 per share, roughly 70% ahead of the current market price. 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.
|S&P 500 Return||0%||-14%||84%|
|Trefis Multi-Strategy Portfolio||-4%||-22%||207%|
 Month-to-date and year-to-date as of 6/11/2022
 Cumulative total returns since the end of 2016
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