What’s Next For Shopify Stock After Tough Q2 Report?

Shopify stock (NYSE: SHOP) has gained almost 17% over the past week (five trading days) as investors embraced technology and growth stocks once more, following strong results from tech majors like Alphabet and in addition anticipation that inflation could cool, with energy and commodity prices easing. Nonetheless, Shopify’s recent earnings report for Q2 2022 was actually quite weak. Revenue rose by nearly 16% year-over-year to $1.3 billion, marking a substantial slowdown from the 57% growth the corporate posted within the year-ago quarter, as demand growth for the corporate’s e-commerce tools slowed considerably as customers returned to physical retailers with Covid-19 easing. Shopify reported an adjusted net lack of $38.5 million in comparison with an adjusted net income of $284.6 million within the year-ago quarter, as Shopify’s R&D spending and marketing costs continued to climb despite the slowdown in revenues. Now Shopify projects that its losses could actually widen over Q3 as the corporate continues to speculate in constructing its own distribution network, while also contending with a weak macro environment.

Although there are multiple near-term headwinds for Shopify, we consider that the stock looks quite attractive at current levels of about $40 per share. The stock stays down by about 70% year-to-date and now trades at nearly 7.5x projected 2022 revenue, down from a spread of 20x
to 40x seen between 2019 and 2021. Nonetheless, Shopify has actually made considerable progress since then. For perspective, its customer base has risen 2x from pre-pandemic levels and gross merchandise value for 2021 stood at somewhat over $175 billion, making it almost half as large as Amazon’s
marketplace. While the recent slowdown in revenue growth is a difficulty, this was to be expected, given the U.S. GDP contracted for 2 quarters straight, with inflation surging to multi-year highs, putting pressure on household spending. Nonetheless, the shift toward e-commerce is more likely to be a largely secular trend, and we predict Shopify will remain a primary beneficiary of this growth, because it provides the go-to product suite of software and analytics tools for businesses that wish to log on without having to bank on platform titans reminiscent of Amazon.

We value Shopify stock at about $50 per share, roughly 25% ahead of the present market price. See Shopify Valuation: Is SHOP Stock Expensive Or Low-cost? for more details on Shopify’s valuation and Shopify Revenue for more details on the corporate’s revenue streams and the way they’re trending.

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