The company that made e-commerce accessible for everyone announced great results earlier last week but the company share price declined by 10%. Actually the operating expenses are at the moment growing more rapidly than revenues and markets, often short-sighted, punished the stock. In addition, we believe that the stock price grew too hard. We explain below.
Around 500K business and small companies are using the Shopify (NYSE:SHOP) solution to expand their business. Most of the users are very small to medium-sized businesses.
The competition ahead is going to be intense with Amazon (NASDAQ:AMZN). For the time being, consumers are still not attached to one single e-commerce platform and we believe this is going to continue. Indeed, Amazon is not providing an awesome user experience as can provide a small business with very fancy website (very easily done with Shopify). In our view businesses that can be first in reaching consumers often win. We do not consider then that Amazon will be the single entry-door to e-internet shopping in the future.
The share price growth has been tremendous going from $42 at the start of the year to $100 now. We consider that the long-term outlook is positive. The market cap is only $10 billion. On top of that, there are major opportunities of expansion overseas.
But, because there is always a “but”, the success of Shopify has certainly been pumped by dream sellers. Indeed, it is now very easy to set up a business and to use a drop shipping model (selling directly from suppliers, often Chinese). Many new businesses with that model are now flooding Facebook (NASDAQ:FB) and Instagram with ads. Markets are now more aware of that and even though the overall business model of Shopify is great, the share price is very likely too high at the moment. This is a great stock, just wait for a strong dip before going in.
