Shopify (Shopify Stock Quote, Chart, News, Analysts, Financials TSX:SHOP) killed it in last month’s earnings release but the stock still fell, as investors zeroed in on management’s prediction of slower growth up ahead. With shares now down ten per cent over the past three weeks, are we seeing the end of SHOP’s spectacular run?
The signs certainly point to a slow-down in growth for the e-commerce company, says research analyst Brooke Thackray of Horizons ETF Management Canada, but how many times have we seen Shopify doubters make the wrong call? Too many to count.
“Shopify has done extremely well. It’s been the Canadian darling and it actually was responsible for most of the performance of the TSX last year, which is quite incredible,” said Thackray, speaking on BNN Bloomberg on Monday.
“But in its recent earnings announcement it basically said, ‘Look, we had really strong results and we grew by around 79 per cent last year, but we can’t keep this up and we don’t expect to keep this up,” he said. “And with the reopening of the economy they would actually expect to see slower growth.”
Shopify announced its fourth quarter and 2020 year end numbers on February 17, showing a whopping 94-per-cent year-over-year increase in revenue to $977.7 million for the Q4 and another almost doubling of revenue for the full year, generating a 2020 top line of $2.929 billion compared to 2019’s $1.578 billion. Just as positive, SHOP’s Q4 had positive net income of $123.9 million compared to $771,000 a year earlier, while the full 2020 was also positive at $319.5 million compared to a loss of $124.8 million in 2019. (All figures in US dollars.)
“From the start of Black Friday in New Zealand through the end of Cyber Monday in California, sales on Shopify’s platform reached more than $5.1 billion,” Shopify said in its fourth quarter press release. “This compares with more than $2.9 billion in Gross Merchandise Volume (GMV) for the global Black Friday Cyber Monday period in 2019. Shopify also offset all carbon emissions from the delivery of every order placed on Shopify’s platform during the weekend, resulting in nearly 62,000 tonnes of carbon emissions offset.”
GMV, a count of the total dollar value of orders placed on SHOP’s platform, hit $41 billion for the Q4 and $120 billion for the year, both again near doubles year-over-year. The company saw expansion of services as well as the launch of a new Shopify POS, its Alipay payment method in the US, along with expansions of Shopify Payments to new countries and the rollout of Shopify Capital across the US, Canada and the UK. That’s on top of the further strengthening of Shopify’s own fulfillment network and expanding its warehouse, shipping and transportation grid.
“We are building a global commerce operating system that lowers the barrier to entry to entrepreneurship and provides our merchants with the tools they need to manage and scale their business across a number of channels,” Shopify said.
At the same time, the company’s outlook was muted, noting that a chunk of consumer spending which migrated online during the pandemic will head back to bricks-and-mortar as vaccines make public gathering safer. The end result will be a slow rate of growth in 2021, according to Shopify.
Thackray said that slowdown should at least give investors pause before buying SHOP.
“The pandemic actually helped them because everyone’s working from home and that really facilitated their business style, but with the reopening of economies we’ve moved somewhat back to normal,” Thackray said. “We may have less opportunities for Shopify to expand.”
“I know they came out with an investors’ day and talked about some expansion opportunities coming up, but overall, I think they have less opportunities as we mature in this pandemic on a go-forward basis,” he said.
“But the company has surprised everybody to the upside and continues to perform well. I think it’s okay at this point. Just recently as of last few weeks we’ve started to see SHOP underperforming the market — if it maintains that underperformance, I’d be looking to go elsewhere, as we may see a little bit of softness in the stock as the economy actually reopens,” Thackray said.
Shopify shareholders have had phenomenal success in recent years. For 2019, the stock increased in value by 184 per cent, while last year saw SHOP gain a further 178 per cent. So far in 2021, the stock is up 15 per cent, which compares to gains of five per cent for both the S&P/TSX Composite in Canada and for the tech-heavy NASDAQ in the US.
This past week, Shopify completed a huge equity raise, closing on a public offering of 1.18 million shares for proceeds of $1.551 billion. The company said it will use the funds to strengthen its balance sheet and fund its growth strategies. At the close of the 2020 year, SHOP had $6.39 billion in cash and equivalents compared with $2.46 billion at the end of 2019.
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