The investment world can be neatly divided into two camps: people who bought Shopify (Shopify Stock Quote, Chart, News, Analysts, Financials TSX:SHOP) and are grinning like the Cheshire Cat and those of us with furrowed brows who are sporting severe cases of FOMO.
But if you don’t yet own SHOP it’s actually not too late, says James Telfser, portfolio manager at Aventine Investment Counsel, who thinks the company is fast becoming a much more safer bet for the long term.
“We follow Shopify. We don’t own it, but watching Shopify hang in there while other high-growth names have been dramatically underperforming the S&P 500— or the TSX for that matter— has been pretty impressive, actually,” said Telfser, speaking on BNN Bloomberg on Wednesday.
Year-to-date Shopify is pretty much at even par at the moment, having risen to an all-time high of $1858 per share in February and now trading in the $1400s.
As the story goes, 2020 was a banner year for SHOP, aided by the pandemic-boosted movement of commerce out of the malls and Main Streets and online where Shopify’s platform proved essential to Mom ’n Pop operations and big box stores, alike.
Shopify ended 2020 with revenue up 86 per cent from 2019 with gross merchant volume, the sum total of transactions conducted via its platform, growing 96 per cent to a massive $120 billion. Net income for the year rose to $319.5 million or $2.59 per diluted share compared to a loss of $124.8 million or $1.10 per share a year earlier.
But with the overall market this year rotating away from hot COVID stocks such as those in the tech field and into value plays as found in sectors like financials and industrials, there’s been less to cheer about for names like Shopify.
For comparison, both the S&P/TSX Composite Index and the S&P 500 are up about 14 per cent year-to-date and hitting new all-time highs, whereas the tech-heavy NASDAQ is up a more modest ten per cent. And like Shopify, other tech names such as Amazon (NASDAQ:AMZN) and Apple (NASDAQ:AAPL) who had big years in 2020 are currently trading at even or a little under for 2021.
But Telfser says what investors should be paying attention to when it comes to Shopify is the company’s ability to innovate and to make money on its supporting cast of players in the e-commerce space.
“There’s a stat out there that says the universe of companies that feed into Shopify make more money than Shopify,” Telfser said. “That’s the beauty of their business model that they’ve created. There are a lot of companies that can operate inside of that orbit and do really well and that actually makes Shopify a lot stronger and builds that moat around their business.”
“We do believe that Shopify is one of the greatest businesses out there in the e-commerce world and it will be for quite some time. They’ve created this flywheel where it’s really hard to get out of it once you get in and you have a website and it’s just getting better and better with the platforms that they’re adding into it,” he said.
Shopify made waves a few weeks ago when Google parent company Alphabet announced it will be partnering with SHOP to allow the latter’s merchants to more easily list on Google’s properties, such as the search engine, shopping site, maps and YouTube. The partnership will also make Shopify options such as Shop Pay available to Google merchants, all in a bid to take on the reigning e-commerce champ, Amazon.
“With just a few clicks, these retailers can sign up to appear across Google’s one billion shopping journeys each day,” said Bill Ready, Google’s President of Commerce at the company’s I/O software developer conference, as reported by BNN Bloomberg.
Telfser said the accelerated shift in commerce online over the pandemic wasn’t a flash in the pan but part of an ongoing trend which should benefit Shopify and its shareholders for quite some time.
“We think a lot of the pandemic growth that they’ve got is really sticky and a lot of these shops will stay online because e-commerce is just going to grow relative to bricks and mortar retail over the next few decades,” Telfser said. “It’s never too late to buy a name like Shopify if you want some growth [in your portfolio].”
“It’s tricky to recommend buying a stock at these valuation levels but I’ve been saying that for forever on a name like Shopify and it continues to continues to outperform,” he said.
Shopify announced its first quarter 2020 results in late April, showing revenue up 110 per cent year-over-year to $988.6 million and gross merchandise volume up 114 per cent to $37.3 billion. Adjusted net income for the quarter was $254.1 million compared to $22.3 million a year earlier.
Shopify said in its Q1 press release that growth in online commerce is likely to continue in 2021 but at a slower pace than that seen in 2020.
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