Hyper-growth e-commerce solutions provider Shopify Inc (US) (NYSE:SHOP) was a darling of Wall Street for most of 2017. Until short seller Citron Research targeted the name. In addition to saying the valuation on Shopify stock should be cut in half, Citron called Shopify a “get rich quick” scheme that will soon face legal troubles. The SHOP stock price dropped steeply off its $120 all-time high to $92.
But many analysts and investors, myself included, thought those claims were off base.
Shopify isn’t a get-rich-quick scheme which illegally leverages a promotional partner network to recruit the majority of its merchant base. The company is an enabler of e-commerce solutions for millions of entrepreneurial businesses that would otherwise be eaten alive by Amazon.com, Inc. (NASDAQ:AMZN).
Moreover, Shopify’s big multiple is because of its big growth. It has a sales multiple twice as big as its peers because it’s growing revenues twice as fast.
The market is slowly buying back into the bull thesis, and Shopify stock is resuming its uptrend.
This uptrend will continue. Secular tailwinds in e-commerce and social selling should continue to propel Shopify stock higher over the next several years.
Broad-based E-Commerce & Social Selling Growth
Shopify is a provider of e-commerce solutions to retailers.
Specifically, the company provides tools which connect the multiple points of sale in today’s omni-channel retail world. Transactions in the digital world today happen on the retailer’s website, through a third-party marketplace, through social media platforms, and through many, many more places. SHOP connects all those places and provides these solutions specifically for small to medium-sized businesses.
Consequently, Shopify wins not only when e-commerce growth sizzles, but specifically when that e-commerce growth is coming from everyone (big retailers and small retailers). Shopify also wins when digital sales start coming through new avenues, like mobile and social media platforms.
Both of those things are happening right now.
Look at recent retail earnings reports. Foot Locker, Inc. (NYSE:FL) reported direct-to-consumer sales growth of 14% last quarter, up from 13% a year ago. Gap Inc (NYSE:GPS) reported that online and mobile sales were up in the high-teens range last quarter. Digital sales growth at GPS has accelerated in each quarter since the third quarter of 2016.
All in all, e-commerce growth is not only on fire, but it’s coming from everywhere. That means that everyone, small and big, can succeed in the digital retail world. The more smaller players continue to succeed with bigger players, the more small to medium-sized businesses will sign up for Shopify.
On the other side of things, we are now in the world of social commerce. For a while, consumers discovered products through apps like Instagram, only to leave the app and go buy through the retailer’s website or in its store. Now, consumers both discover and purchase products through Instagram. The entire transaction process has been condensed to fit in one spot.
Shopify provides solutions for retailers to start using social media as a digital point of sale. This will undoubtedly be a huge growth segment for SHOP over the next several years as the social commerce space scales.
Bottom Line on Shopify Stock
SHOP stock got knocked down by Citron, but only for a brief moment.
Shopify stock is back to its winning ways. It will stay on an upward trend so long as the secular trends in e-commerce and social selling continue to play out as expected.
Right now, those trends are actually accelerating. Consequently, Shopify stock looks positioned for a big rally in the near future.
As of this writing, Luke Lango was long SHOP, AMZN, TGT, FL, GPS, and LB.