It’s no secret that the stock market is very volatile due to the coronavirus pandemic.
Stocks for most companies are following the “one good day, one bad day” pattern. Tech stocks such as Shopify (NYSE:SHOP) aren’t strangers to oscillation in the current scheme of things, but Shopify stock has managed to rally despite the chaos.
Here’s a look at why Shopify presents a solid long-term investment opportunity.
The Bull Case for Shopify Stock
The coronavirus-domino effect has impacted businesses across the globe. Shopify is no different, and its primary target segments, the small to medium-sized enterprises (SME’s), are at risk. On the flip side, there are a lot of positives about the Shopify business model that should help the company survive this pandemic. Businesses will cut costs to offset the losses triggered by the coronavirus-market slowdown, which will leave behind critical components which includes Shopify.
Shopify’s comprehensive e-commerce platform is second to none as it allows firms to manage a host of critical functions such as payment management, design, and shipping in one place. Prior to the crisis, online shopping was surging; now it’s arguably the only hope for most businesses, and that’s why it presents a unique opportunity to Shopify.
Furthermore, several companies in the energy, cruise-line, and airline industry are likely to lay-off a sizeable number of workers. In such times it is plausible to assume that laid-off workers could use this situation to start their businesses, which will ultimately lead to a surge in the number of customers for Shopify.
Blowout Fourth-Quarter Results
Shopify’s impressive financial numbers over the past year are a testament to its growth story. The company reported revenues of $505.2 million in the fourth quarter, crushing analyst forecasts by $23 million.
The blow-out fourth quarter takes the year-over-year revenue growth to 47%. The increase in the fourth quarter was mainly driven by subscription and merchant solutions that grew by 37% and 53% respectively.
Monthly recurring revenues were up by 32% over the year-ago period, along with a massive 47% increase in the gross merchandise volume. These figures were enough to turn a profit of $0.8 million in the fourth quarter compared to a net loss last year of $1.5 million.
The 2020 outlook for the tech company looks solid as well, which is in the range of $2.13 to $2.16 billion.
Lofty Ambitions
Shopify’s e-commerce solution, with its exhaustive suite of services, has propelled it to the top of the heap in the e-commerce platform market.
According to Buildwith.com, the percentage of the top 1 million websites using Shopify is 2.7%. It is the fastest-growing e-commerce platform and has almost an 11% edge over its nearest competitor Woo Commerce across the whole internet. In the US e-commerce platform market alone, it has twice the market share to Woo Commerce.
In recent years though, the company is looking to evolve and expand on its business model to rival the more diversified tech companies such as Amazon (NASDAQ:AMZN) and Google (NASDAQ:GOOGL, NASDAQ:GOOG).
Fueled by the boldness of its CEO Tobias Lutke’s vision, the company has made its move into the logistics and warehousing business to rival Amazon. In the next few years, the company’s prime focus is to build on its software infrastructure to facilitate its lofty ambitions of becoming a third-party logistics provider. With Shopify fulfilment, the company’s customers will be able to tap into a more streamlined and cost-effective supply chain network. Shopify will be spending upwards of $1 billion in the next five years for their fulfilment network. Additionally, the company acquired warehouse automation services provider 6 River Systems for $450 million last year.
Shopify is also looking to expand on its international presence. The bulk of its revenues are generated from the US, while Canada, Australia, and the UK are next in line. These non-core markets present an enormous long-term opportunity for the company in localizing its services. The platform is now available 20 additional languages — 13 added in the past year alone. Shopify is also expanding its ancillary services to its international merchants such as Shopify payments and others.
Bottom Line on Shopify Stock
The coronavirus has brought immense fear in the hearts of investors. Investors with short-term outlooks have panicked, and stock prices have subsequently plummeted. It does, however, present an opportunity for investors with long-term perspectives, to pick up stocks with upside potential for a bargain price. One such stock is Shopify, which has a unique model that will help it ride through the current crisis and perhaps even flourish in the long run.
As of this writing, Muslim Farooque did not hold a position in any of the aforementioned securities.
