As many of my readers know, I’ve consistently supported the long-term case for Shopify (NYSE:SHOP). Despite many changes in the retail landscape, none is more profound than the impact of e-commerce. That’s why even amid this turmoil, Amazon (NASDAQ:AMZN) shares are, at time of writing, in positive territory for the year. Although Shopify stock can’t quite say the same thing, it’s not too far off from break even.
However, I can certainly appreciate the growing chorus of concern toward big growth firms. Although SHOP’s e-commerce platform includes a variety of product categories, a majority are levered toward discretionary spending. In prior years, the robust labor market helped fuel Shopify stock. Currently, we’re facing the exact opposite situation.
A few days ago, mainstream news dropped a bombshell report: in a one-week period, over three million Americans filed for unemployment benefits, which by itself is a staggering record. However, the latest unemployment numbers were even worse. According to the U.S. Department of Labor, more than 6 million Americans filed for unemployment benefits last week.
And these aren’t just “mystical” figures drawn up by a thinktank. For further evidence, just check out Target’s (NYSE:TGT) comparable sales for March. As expected, the big-box retailer saw a huge boost in demand due to coronavirus-led panic and hoarding. However, the spending stopped at food, water and other essentials.
However, when it came to revenue from apparel and fashion accessories? Those sales plunged 20%. Worse yet, many competitors in that retail segment temporarily closed their doors. That demonstrates a severe erosion in discretionary demand, which doesn’t favor Shopify stock.
Why Shopify Stock Can Survive This Mess
Though I encourage an optimistic view toward the coming years ahead, I also don’t want investors to ignore reality. Clearly, the consumer market is hurting desperately, which ordinarily would present a severe headwind against Shopify stock. Yet, we also shouldn’t dismiss a series of events that will help SHOP weather the storm.
For the first time in a long time, we’re seeing consensus at the very top of national leadership. True, there have been some partisan bickering — this is Washington after all — but ultimately, both Democrats and Republicans came together to push through a landmark $2 trillion economic stimulus package.
Within this package are billions of dollars of forgivable loans earmarked for small businesses and nonprofits. Combined with the personal stimulus and the availability of liquidity, this unprecedented governmental effort should help many viable SHOP merchants stay afloat. After all, smaller businesses mean smaller overhead costs, where financial aid will go a lot further relative to larger counterparts.
Second, we’ve got to remember that not all industries are impacted equally from the pandemic. For instance, many technology firms have successfully made the transition to widescale telecommuting. Other sectors have also followed suit, meaning that many workers are still being productive and getting paychecks.
Therefore, it’s reasonable to assume that at least some of the folks still employed will use their stimulus checks to purchase discretionary items. Over the next several weeks, we could see the sales influx bolster Shopify stock.
Third, SHOP benefits from an organic (and fortuitous) marketing opportunity. In the prior paradigm, e-commerce was a choice. Today, it’s a necessity both from a legal perspective (mandatory stay-at-home orders) and an ethical one. Indirectly, this circumstance should help raise the profile of Shopify stock.
Innovation Is Never Quarantined
Let’s suppose that you could go back in time to life before the coronavirus. In that circumstance, would you buy Shopify stock? Chances are, if you examined how the underlying company connects with the burgeoning Generation Z by utilizing the power of social media and influencing, the answer would be a resounding yes.
So, what changed? Obviously, the pandemic has taken the wind out of global economies and consumer sentiment. Further, we can face some troubling times ahead.
But like every calamity, these problems are temporary. However, the spirit of innovation is permanent. In fact, if you look at the history of e-commerce as a percentage of total sales, you’ll find that even in times of recession, this sector has only gone flat — it has never retreated.
That’s why you can have confidence that Shopify stock will ride out this turbulence. When the headwinds fade, consumer sentiment will return, making this pain just a blip on the radar.
Matthew McCall left Wall Street to actually help investors — by getting them into the world’s biggest, most revolutionary trends BEFORE anyone else. The power of being “first” gave Matt’s readers the chance to bank +2,438% in Stamps.com (STMP), +1,523% in Ulta Beauty (ULTA) and +1,044% in Tesla (TSLA), just to name a few. Click here to see what Matt has up his sleeve now. Matt does not directly own the aforementioned securities.