Canadian e-commerce company Shopify (NYSE:SHOP) has found itself in an interesting position as the coronavirus pandemic unfolds. Shopify stock is no different. Lockdowns and social distancing are in full force, closing non-essential stores in many areas. Consumers are reluctant to venture out to shop, worried about exposure to COVID-19.
All this has resulted in an explosion of business for Amazon (NASDAQ:AMZN). Shopify — which has been positioning itself as an alternative to Amazon’s Marketplace sellers — isn’t seeing the same gains. After a brief bounce in March, Shopify stock is heading down again.
At time of writing, SHOP was trading at $381. That’s down 30% from Shopify’s all-time record highs set in February. Does this mean now is the time to invest?
High Reached Followed Immediately by Coronavirus Selloff
Obviously 2020 has been a train wreck of a year for most stocks. Shopify has been far from immune. In fact, SHOP investors have been on a rollercoaster.
As last year’s holiday shopping season kicked off, Shopify reported record sales. From the start of Black Friday to the close of Cyber Monday, Shopify merchants worldwide reported sales of nearly $2.9 billion. This was a huge increase over the $1.8 billion reported during the same timeframe in 2018. Between Thanksgiving and Christmas, SHOP stock — already on a tear in 2019 — gained another 25%.
On Feb. 12, Shopify announced its fourth-quarter and full-year 2020 results. Q4 revenue of $505.2 million was up 47% year-over-year. Earnings of 43 cents per share obliterated expectations of 24 cents per share, and the company issued upbeat guidance for 2020. As a result SHOP stock continued to climb. It closed at a record $543.21 on Feb. 19.
That represented 196% growth over 12 months. And then the coronavirus effect kicked in.
Shopify Stock’s Roller Coaster Ride
As February closed out, SHOP began to slide on worries about the coronavirus and how that might impact the global economy. The company was forced to cancel its annual conference, scheduled to take place in Toronto on May 7.
With the recognition that COVID-19 was a global pandemic, Shopify was caught up in the market selloff. On March 16, SHOP closed at $322.29, a loss of over 40% in the space of four weeks.
Like many stocks, Shopify began to bounce back as measures began to take shape, including government assistance for consumers and the business sector. However, while Amazon stock continued to regain ground since then, Shopify stock soon began to slump again.
Amazon emerged as a winner, with online shopping growing so quickly in popularity the company had to rapidly hire 100,000 workers to meet the demand. Amazon has many advantages, ranging from its delivery network to the fact that it carries so many basic need goods and grocery items.
Shopify saw a big boost on it’s platform as well, but it wasn’t so positive. One big red flag quickly arose. Because it’s so easy to launch a storefront on Shopify (you just need a credit card and an email address), it was quickly hit with a flood of bogus stores purporting to sell products to fight the coronavirus. According to a report in The New York Times, Shopify shut down 4,500 sites related to coronavirus in one week.
In addition to the bad PR from the coronavirus-related sellers, Shopify delivered bad news to investors last week. On April 2, the company announced it was suspending its full-year 2020 guidance due to coronavirus disruption. That news sent SHOP stock down 13% with worry that consumers will spend less. Some of Shopify’s merchants will be forced to close down their business.
Bottom Line on SHOP Stock
After a spectacular 2019 and a great start to 2020, Shopify is in uncharted waters. The coronavirus is taking investors on a roller coaster ride. Investment analysts are taking a wait and see approach at the moment, but by a narrow margin.
Nearly as many see SHOP’s current situation as an opportunity to grab Shopify stock at a bargain price. Even the most jaded of the analysts surveyed by CNN Business has a 12-month price target for SHOP of $320, so no one is expecting the company to implode.
The real question is how soon it will begin to recover. And at this point, that is all about the coronavirus, which means no one really knows.
As of this writing, Brad Moon did not hold a position in any of the aforementioned securities.
