This top dog is down, but not out
Jamie Louko (Shopify): Shopify has had its ups and download recently, and the stock has certainly gotten punished for it. Shares of this e-commerce platform are down 78% from their all-time highs. Part of the reason for this is because the company is seeing e-commerce as a percentage of U.S. retail sales trend downward, and while e-commerce adoption is still higher than it was in 2019, it is falling back in line with pre-pandemic growth projections.
However, e-commerce is expected to become increasingly popular moving forward, and Shopify will likely benefit. The company enables small businesses to start, run, and grow their businesses to help compete with bigger e-commerce sites. This endeavor has been quite successful: Shopify now has millions of merchants around the world, enabling almost $47 billion in merchandise volume sales in Q2 2022.
Shopify merchants represented over 10% of U.S. retail e-commerce sales in 2021, but it could take more share. Shopify is known for innovation and continuously offering new features and products to help its merchants thrive. This could transform Shopify into a gold-standard platform and take market share.
One of Shopify’s latest innovations is the Shopify Fulfillment Network (SFN), which allows merchants to offload shipping and fulfillment duties to Shopify. This will be expensive to build, but it could be a value add. One of the advantages bigger e-commerce players have over small businesses is fast delivery times, so the fact that Shopify can achieve two-day delivery for the majority of orders could be a huge incentive to use Shopify’s platform.
Shopify is a leader in the small business space and is attacking a large market. Its high switching costs also make its platform sticky. The company trades at 9.3 times sales -- a historically low valuation since it came public in 2015. While that’s higher than other e-commerce stocks like Etsy (ETSY -4.65%) and BigCommerce (BIGC -3.47%), Shopify’s competitive advantages might be worth a premium.
Given this historically reasonable price, investors might want to invest in this top dog and hold for the long haul.
