While the virus outbreak proved devastating for many businesses, it actually turned out to be a huge tailwind for e-commerce ventures like Shopify and its peers.
In fact, as consumers found themselves housebound with plenty of extra time on their hands, the demand for online shopping and entertainment platforms exploded.
Indeed, with a slowdown in other areas of the economy – and a rise in unemployment, too – the number of individuals seeking to create their own virtual cottage industries also increased.
Recognizing that secular trends like these don’t come about too often, Shopify was quick to move. Knowing that merchant numbers would swell during the 2020-21 era, the company strategically positioned itself to capitalize on a post-pandemic world. It created an all-new point-of-sale solution that would bring together in-person and online sales once the crisis had subsided, helping retailers to bounce back stronger.
Having demonstrated foresight such as this, it was no surprise to see Shopify’s share price soar. SHOP reached an all-time high in November 2021, having grown more than 1,500% since going public in 2015.
However, the positive developments that elevated the business back then have tumbled. The stock dropped 35% in the past twelve months and trades for less than a third of the price it did at its zenith.
That said, Shopify is up a massive 28% this year and, as you’ll discover later on, performed exceptionally well during 2022.
But this leaves investors with some difficult questions. Will the firm continue along its upward trajectory? Or is the company due a harsh correction in the not-too-distant future?
Shopify Is In 175 Countries
As a leading global commerce company offering comprehensive internet infrastructure for merchants and sellers, Shopify is a trusted provider of tools enabling businesses to start, market, and scale their operations.
With a presence in more than 175 countries, SHOP’s reach has enabled it to assemble a user base of millions while generating total sales of around $650 billion.
A big part of Shopify’s success is its ability to build a mission-critical architecture that merchants can utilize at every stage of their business’s life cycle.
For example, an early-stage entrepreneur could implement SHOP’s Payments, Capital, Balance, and Tax products to run their service end-to-end. Likewise, when the organization has matured and needs to drive conversion and find new buyers, there are the Shop Pay, Shop Cash, and Shopify Collabs applications to fall back on.
Crucially, if and when a merchant is ready to scale up to the enterprise level, next-stage solutions are also available. Shopify Markets Pro ensures that companies can launch in foreign territories and jurisdictions, while its Tokengated experiences “incentivize communities and keep them hungry” for a brand.
Fourth Quarter and Full Year Results
Despite a challenging macro environment, Shopify’s earnings report delivered almost nothing but good news.
To begin with, the company’s Q4 Gross Merchandise Volume (GMV) increased 13% to $61.0 billion, while its overall revenue spiked 26% to $1.7 billion. Furthermore, its Merchant Solutions brought in $1.3 billion in sales – a jump of 30% – with gross profit dollars growing 15% to $798.5 million.
It was a similar story regarding SHOP’s full-year highlights too. GMV rose 12% to $197.2 billion, with Merchant Solutions growing 28% on a constant currency basis.
However, adjusted operating income tanked, falling from $718.0 million per annum in 2021 to just $6.1 million in 2022. This was explained by the implementation of a new corporate compensation scheme and the costs associated with an increased headcount.
Where Is Shopify Headed?
Shopify has shown great skill at improving many of its key metrics. The company’s monthly recurring revenue has increased at a compound annual growth rate of 30% for the last five years, while its Shopify Payments GMV reached a record 56% in the fourth quarter of 2022. Moreover, its subscription segment is still getting stronger, rising 14% year-on-year to $400.3 million.
Interestingly, although the firm expects further penetration in the coming years, SHOP’s slice of the US e-commerce market stands at just 10% today.
However, a big part of its efforts to grow this share will likely come through its propensity to build on and upgrade its logistics offering. In fact, the business is already well on its way to doing just that, with its $2.1 billion acquisition of Deliverr, an eCommerce fulfillment and order storage provider.
The buyout will bring many benefits to Shopify’s Fulfillment Network and position the enterprise as a rival to Amazon at some point. For example, having Deliverr on board will simplify SHOP’s supply chain matrix and “address merchants’ pain points,” making it an asset-light model through computer software, last-mile delivery providers, and regional fulfillment centers.
Shopify Stock Forecast: Is The Company A Buy?
Two of Shopify’s key investment themes are building buyer relationships and expanding its global footprint. Moreover, its capacity to execute these lofty ambitions will determine whether it thrives or dies in the current climate.
Fortunately, the signs are good. In addition to its assault on AMZN’s hegemony in the e-commerce space, its point-of-sale offering, Shopify POS, is also knocking on Block’s door in the offline retail market too.
In fact, SHOP’s 2022 offline GMV rose 40%, and the company has scaled the product by launching a Shop Pay, and Shop Pay Installments, limited beta.
On top of that, the firm is localizing its platform across the world. Shopify Payments is now available in 22 countries, while SHOP enabled $28 billion of cross-border sales in 2022.
However, there are risks. It isn’t clear if Shopify can sustain the rising losses it incurred in the fourth quarter, which grew from $14.4 million to $188.7 million.
But if it can weather the increase in expenses – and its fulfillment play comes off- there’s no reason why Shopify stock won’t keep on rising. And $150 by 2025, producing a 200% return is certainly within reach.
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