What’s Next For Shopify Stock After Tough Q2 Report?

SHOP: Shopify logo

Shopify stock (NYSE: SHOP) has gained almost 17% over the last week (five trading days) as investors embraced technology and growth stocks once again, following strong results from tech majors like Alphabet and also anticipation that inflation could cool, with energy and commodity prices easing. However, Shopify’s recent earnings report for Q2 2022 was actually quite weak. Revenue rose by just about 16% year-over-year to $1.3 billion, marking a considerable slowdown from the 57% growth the company posted in the year-ago quarter, as demand growth for the company’s e-commerce tools slowed considerably as customers returned to physical retailers with Covid-19 easing. Shopify reported an adjusted net loss of $38.5 million compared to an adjusted net income of $284.6 million in the year-ago quarter, as Shopify’s R&D spending and marketing costs continued to climb despite the slowdown in revenues. Now Shopify projects that its losses could actually widen over Q3 as the company continues to invest in building its own distribution network, while also contending with a weak macro environment.

Although there are multiple near-term headwinds for Shopify, we believe that the stock looks quite attractive at current levels of about $40 per share. The stock remains down by about 70%  year-to-date and now trades at just about 7.5x 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. While the recent slowdown in revenue growth is an issue, this was to be expected, given the U.S. GDP contracted for two quarters straight, with inflation surging to multi-year highs, putting pressure on household spending. However, 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 titans such as Amazon.

We value Shopify stock at about $50 per share, roughly 25% 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.

What if you’re looking for a more balanced portfolio instead? Our high-quality portfolio and multi-strategy portfolio have beaten the market consistently since the end of 2016.

 Returns Aug 2022
MTD [1]
YTD [1]
Total [2]
 SHOP Return 17% -70% 852%
 S&P 500 Return 0% -13% 85%
 Trefis Multi-Strategy Portfolio 3% -10% 253%
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[1] Month-to-date and year-to-date as of 8/8/2022
[2] Cumulative total returns since the end of 2016

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