RENAUD GIRONNE

What happenned to you Shopify?

If you follow closely the activities of our dear committee, PolyFinances, you are aware that we hold evenings where we issue recommendations regarding the purchase of certain securities. We are responsible for a portfolio with which it is very interesting for us young students to do business. This process is the basis of our group’s learning intentions. 

This preamble sets the stage for a disastrous event … So it was a cold, dry November evening. Me and the other three members of my analysis group (whose names I will exclude) were preparing to present our buy recommendation. Tired of a long day at school but still very confident in our analysis, the choice was clear; we weren’t going to recommend buying from Shopify for CAD $ 389.15. 

As of January 2021, when this article was written, the price is now close to $ 1,500 CAD. This is how I and the rest of my group have to ask ourselves, what happened to Shopify? 

Before we crucify our careers as financial analysts, let us give ourselves a chance to explain what happened. In the fall of 2019, with a financial bubble that seemed only to open the door to a financial crisis, it made no sense to us that a company with such low free cash flows and such high volatility could get by without abrasions. ‘a recession. The following figure was present in our 2019 report. 

Figure 1: Comparison of the volatility in the sector

 

This comparison of volatility in the sector scared us. New to the world of finance, it seemed risky to put our committee’s money in such an uncertain security. To add, Trump continued the trade war with China by relentlessly announcing tariffs on Twitter. In the same vein, the supposedly very high proportion of customers taking advantage of Dropshipping worried us. As we expressed in our report, Dropshipping is the principle of importing-exporting (often from Chinese sites) a targeted product without ever being in contact with it. Then, looking at the 2018 financial report, we noticed that for $ 41 billion of merchandise sold on the site, the average merchant revenue was $ 50,000. Everything suggested that the increase in user numbers on the site that had propelled the stock market action was being skewed by dropshipping customers or very low volume customers. 

In this way, we came out of this evening confident and fulfilled. We now find ourselves in a pandemic later in 2021, the share price has exploded again. The company now finds itself with a PE ratio of over 900. It would logically be impossible to base a buy recommendation simply on its financial analysis. The same goes for many big names in the stock market these days. 

Indeed, the company’s revenues have continued to increase in 2020 due to the growing number of online stores created. Meagan Simpson of the Canadian Startup News reports that the number of new clients between the first quarter of 2020 and the second increased by 71%. 

With the need to transport their sales online, huge numbers of small retailers have had to find an online platform quickly to sell. With its rise in popularity, Shopify has become the obvious choice for many. This graph of quarterly growth demonstrates it.

Figure 2: Shopify YoY quarterly growth

 

Beyond the enormous growth of its e-commerce service, Shopify is also starting to diversify its offer in interesting ways. You might not know it, but Shopify is now a bank. And yes, by offering small business loan services, Shopify is uniquely positioned to meet the needs of this new customer base. The data he collects on it allows him to make the best decisions about granting loans. 

His tech workforce also seems to have pushed him to integrate into the esports scene. In the not-so-distant near future, the company should be integrated into major video game competitions all over the place. If you are well connected to this reality, you will have noticed their name in a recent Path of Exile competition. 

What is happening with Shopify is magical, and it is good luck for those who have had faith in the vision and direction of leaders. For the less fortunate like us, we are studying the situation closely. It must be said that the concern that online sellers large and small ally with industry giants like Walmart and Amazon does not assure us that Shopify will be able to stay the course.

 

References

Shopify Revenue 2013-2020 | SHOP. (s. d.). Retrieved 6 february 2021, from https://www.macrotrends.net/stocks/charts/SHOP/shopify/revenue
 

Is Shopify (SHOP) Stock Outpacing Its Computer and Technology Peers This Year?. (2021). Retrieved 21 January 2021, from https://ca.finance.yahoo.com/news/shopify-shop-stock-outpacing-computer-163004839.html

MacDonald, C. (2021). Why Shopify (TSX:SHOP) Stock Still Has Tons of Upside Potential!. Retrieved 20 January 2021, from https://ca.finance.yahoo.com/news/why-shopify-tsx-shop-stock-130038243.html

Shopify Revenue 2013-2020 | SHOP. (2021). Retrieved 20 January 2021, from https://www.macrotrends.net/stocks/charts/SHOP/shopify/revenue

Tayal, P. (2021). Let the E-Commerce War Begin: Shopify (TSX:SHOP) vs. Amazon. Retrieved 20 January 2021, from https://ca.finance.yahoo.com/news/let-e-commerce-war-begin-213028113.html