Shopify Inc. (NYSE: SHOP) is one of the many market darlings that have suffered this COVID-19 outbreak. Given that it is one of the biggest up and coming names in e-commerce, are these fears overstated?
The Dow Jones industrial average, S&P 500 and Nasdaq have been crushed as the world waits to see what will happen with this coronavirus. Uncertainty is the market-killer here. What we know for certain, though, is that the pain is not over yet.
Shopify may be in the thick of it now, but when markets recover, this e-commerce firm could be poised to break out again.
Corona Concerns
It might seem that an e-commerce company would be immune from the worst effects of a coronavirus epidemic. Yet, at both ends of the value chain is a physical product that must be picked, packed, shipped and delivered. In areas where strict quarantines are in effect, ordering an online product is no guarantee of delivery.
Therefore, Shopify stock has taken a hit. The shares are down roughly 30% from their all-time high on February 19. However, the stock is still up roughly 108% in the past 52 weeks. This has been one of Wall Street’s favorite stocks to buy, especially among the growth stocks. When the market turns around, it is likely that Shopify will regain this status.
While the impact of the outbreak is virtually certain to be temporary, it does not necessarily imply that its duration will be short. Long term, Shopify should be fine, but for now there will be some obstacles.
Over the past two years, more than a thousand partners from all around the world have converged on Toronto for the Shopify Unite Conference. However, this year will be different. Due to the evolving public health concerns, Shopify has decided to cancel the in-person element of the conference this year. Its chief technology officer, Jean-Michel Lemieux, issued a press release updating on the Shopify Unite cancellation.
Shopify said that it will remain merchant-focused and adjust product planning as necessary, but there are currently no expected impacts or delays in terms of its product releases.
Evolving E-Commerce
Shopify’s e-commerce platform is aimed at small and medium-sized businesses, with or without a brick-and-mortar presence, that need a one-stop shop to build a full-service web presence. These customers are not just building a website, but they are building a digital business.
The company’s platform supplies software tools and hardware for shoppers in physical stores, along with a fulfillment network that many small businesses could not support on their own. Shopify also allows clients to offer and track free shipping, offer discount codes and set up several online stores at once.
Another feature that the platform provides is the ability to target, place and track Facebook ads. While any size company can go directly to Facebook’s own ad services for the same thing, Shopify customers get the ad information right on the platform.
Again, with Shopify’s presence being entirely online, the firm is somewhat insulated against COVID-19. At the same time, its customers will be the ones who might suffer the most from the coronavirus in terms of the slowing economy. On the other hand, e-commerce stands to take a big leap over retail, all things considered. Companies operating on these platforms should be able to find more customers within this virus scare.
Fundamentals
Shopify’s fiscal fourth-quarter report came just before the market downturn. Withstanding that, the profits and growth that the company saw in the fourth quarter and 2019 fiscal year paint an optimistic picture.
Shopify has notoriously poured its profits, or bottom line, back into its platform and continued its massive growth, a la Amazon. If anything, this gives Shopify more flexibility in dealing with this crisis if it puts its parabolic growth on hold for a second. That is not to say that the company will stop growing, but perhaps at a slower rate.
In the fourth quarter, Shopify saw revenues grow 46% year over year, consisting of Subscription Solutions revenue growth of 37% and Merchant Solutions revenue growth of 53%. Subscription Solutions revenue growth was driven primarily by growth in monthly recurring revenue, largely as a result of an increase in the number of merchants joining the Shopify platform. Merchant Solutions revenue was pushed higher by growth in gross merchandise volume.
Guidance for the fiscal first quarter was somewhat optimistic, but it did not take into account the fundamental impact of the coronavirus. It is likely that we can expect a warning or an update ahead of first-quarter results if the company was severely affected. However, that could have been priced in already, considering the stock price movement.
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