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Stock Analysis & Ideas

Shopify: Time to Shop this Stock or Stay Away?

Story Highlights

Shopify stock has tanked this year amid macro concerns and a slowdown in e-commerce spending. Should investors buy the dip or avoid the stock, amid the current turmoil?

Shopify (NYSE: SHOP) (TSE: SHOP) shares plunged 10.2% on Monday, June 13, as growth stocks continue to get clobbered amid escalating risk of recession. Shopify, once a pandemic favorite, has seen its stock sink by a whopping 77% year-to-date. This comes as investors are staying away from high-multiple growth stocks due to record inflation and rising interest rates.

Shopify provides an e-commerce platform that enables merchants to set and manage an online store and sell their products. The company’s shareholders recently approved a 10-for-1 stock split, and a new voting rights plan for co-founder and CEO Tobi Lütke. This plan will ensure him at least 40% of Shopify’s voting rights, under certain conditions.

Challenging Business Landscape

Canada-based Shopify delivered unprecedented growth in the early days of the pandemic thanks to the accelerated shift to e-commerce channels and government stimulus. However, macro headwinds and the reopening of physical stores are impacting e-commerce spending and Shopify’s overall business.

Facing tough comparisons, Shopify slipped to an adjusted loss per share of $0.20 in Q1’22 from $2.01 in the prior-year quarter. Moreover, the 22% revenue growth was more than offset by higher expenses and growth investments.

Despite a challenging market, Shopify continues to invest in its growth initiatives and enhance its platform to attract more merchants. As part of its efforts to strengthen its fulfillment network, the company is acquiring Deliverr, a California-based e-commerce fulfillment startup, for $2.1 billion.

Further, in the first quarter, the company completed the roll out of Shopify Markets, a feature that helps independent merchants to sell their products to consumers around the world.  

Wall Street’s Take

Recently, Jefferies analyst Samad Samana lowered his price target for Shopify stock to $475 from $550, but maintained a Buy rating.

Samana slashed estimates for several software companies and reduced price targets “across the board” due to deteriorating economic headwinds and an impending recession.

The analyst highlighted that several recent data points suggest that consumer behavior is changing rapidly. Additionally, demand might also be softening, while big box retailers’ commentaries raised concerns on a mix shift and a slowdown in e-commerce spending.

Overall, 15 Buys, 11 Holds, and two Sells amount to a Moderate Buy consensus rating for Shopify. Given the significant decline in the stock, the average Shopify price target of $611.74 implies 95.48% upside potential from current levels.  

Conclusion

Tough comparisons and a slowdown in e-commerce spending amid macro concerns might continue to put pressure on Shopify over the near-term. Overall, Wall Street analysts are currently treading carefully with regard to Shopify stock, though there are several analysts who continue to believe in the company’s ability to expand further over the long-term.

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