It’s been one of the best-performing stocks in an industry already dominated by Amazon (NASDAQ: AMZN, and since its IPO five years ago, its stock has soared 3,500% — Shopify (NYSE: SHOP) also recently became MyWallSt’s® first 20-bagger.
Having weathered the coronavirus pandemic well so far, Tobias Lütke’s challenger to Jeff Bezos’ e-commerce throne is shattering records in 2020 and reaching all-time highs for fun, but is it too late to get in on this action? Should investors still buy into Shopify?
The bull case for Shopify
Shopify is riding the illustrious e-commerce wave caused by the coronavirus, as more businesses have moved to online sales in 2020 than it has in the past 14 years, Shopify has been able to make the most of this. Even though its predominantly small and medium-sized customers are the ones to suffer thanks to the pandemic, they are also the ones jumping into e-commerce.
At its most recent earnings report, the company beat expectations with revenue soaring 96% to $767 million. What’s more, it reported net income of $191 million for the quarter, compared to a loss of $73 million for the same period last year. Its rising merchant count is showing no signs of slowing down as gross merchandise volume also jumped 109% to $30.1 billion.
Not one to rest on its laurels, Shopify has been busy making deals too. Its strategic partnerships with Facebook (NASDAQ: FB), TikTok and Walmart (NYSE: WMT) could make it a threat to Amazon’s dominance. This comes on top of the company’s increased recurring revenue via subscription services, which now account for roughly 40% of its total earnings as it embraces the world’s favorite business model.
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We have only scratched the surface of what’s going right for Shopify in 2020 so far and it currently stands as one of this year’s best-performing large-cap stocks.
The bear case for Shopify
No company is invincible, no matter how hyped. There are a number of risks that could come back and haunt Shopify:
1. Strong competition
As e-commerce rises, so too do its participants, and that doesn’t just include online stores, but also payment, cloud security, and more. Companies like Square, PayPal (NASDAQ: PYPL), and Google (NASDAQ: GOOG) compete in its growing payment solutions sector, while Amazon, Mercado Libre (NASDAQ: MELI), Alibaba (NYSE: BABA), and Sea Ltd (NYSE: SE) are all gunning for e-commerce space.
2. The rising costs of growth
Since Shopify’s IPO, its average annual revenue growth has been more than 70%. Over time it becomes harder to sustain this rate of growth.
3. Exposed target market
It may not be having a serious impact on Shopify yet, but its main audience is the endangered small and medium-sized business. Three-quarters of its overall client base sits in this category and are at extreme risk of failing as cases are at an all-time high.
So, should I buy Shopify stock?
Absolutely. Having shown its growth potential long before COVID-19 left its mark on the world, Shopify only stands to gain from the ensuing growth in e-commerce.
What’s important to remember is that it is never too late to get in on this stock, which could potentially be the next Amazon.
No, Shopify does not pay dividends and recently announced that it does not intend to start any time soon.
Based on data compiled in June 2020, Shopify, along with the whole market is overvalued somewhere in the range of 66% to 149%.
Absolutely not. That would be an antitrust nightmare.
MyWallSt operates a full disclosure policy. MyWallSt staff currently hold long positions in companies mentioned above. Read our full disclosure policy here.
Editor at MyWallSt
Jamie is the Content Editor here at MyWallSt. His favorite stock is Apple, which is also the first stock he ever bought. Jamie is not only a big fan of its products, but he believes that the tech giant has a whole lot more to give the world, and hasn't even scraped the surface of its potential.