In a late April headline that went largely unnoticed by most investors, e-commerce solutions provider Shopify (NYSE:SHOP) released a new consumer shopping app, dubbed Shop. Make no mistake: the new Shop app, despite its muted launch, is a game-changer for Shopify stock.
The Shop app essentially packages the whole mobile shopping experience — discovery, payment and delivery — into one app.
Consumers log onto the app with an email. They follow various Shopify-powered brands, which populates a personalized feed of recommended products from those brands (discovery). They then select the products they want to purchase, and check-out seamlessly with Shop Pay (payment), before tracking that package with Shopify’s Arrive technology (delivery).
Yes, it’s the perfect mobile shopping app for the current environment, since it allows consumers to browse local businesses, see which ones are offering pick-up/delivery services, and order directly from them, in a seamless, contact-less manner.
But Shop app is also much more than that. It’s a tool through which Shopify can drive significantly more sales into its ecosystem of 1 million merchants and retailers.
And in that sense, it’s a long-term game-changer for Shopify stock.
The Shop App Is a Game-Changer
The Shop app is a game-changer for SHOP stock for one big reason: native mobile app shopping.
Here’s the logic.
Native mobile app shopping is the future of commerce. But consumers don’t download that many apps. So building out a million native mobile shopping apps for its 1 million merchants is a worthless pursuit for Shopify.
Instead, Shopify has built one mobile shopping app for all of its merchants, essentially combining 1 million unique apps into one central app, with a consistent discovery process, a consistent payment process and a consistent delivery process.
In other words, thanks to Shop app, now every one of Shopify’s merchants has a high-quality, quasi-native mobile shopping app experience. And all consumers have to do to access all of those native mobile shopping experiences, is download one app.
That’s a big deal.
Over the next several quarters and years, as consumers increasingly pivot towards native mobile shopping, the Shop app will attract millions of users, the sum of whom will have robust exposure to products from Shopify’s merchants. Higher exposure will lead to higher sales, which will lead to even more firepower for the already red-hot Shopify growth narrative.
In this sense, the Shop app is the beginning of a new growth vertical for Shopify, wherein the company leverages a consumer-facing app to funnel significantly more sales into its online ecosystem.
Time to Buy Shopify Stock?
Although Shop app is a game-changer, it’s not a big enough game-changer to warrant chasing this rally in Shopify stock.
Shopify stock has more than doubled over the past month to fresh all-time highs. This is now a $75 billion company, that’s set to do $2 billion in sales this year.
The valuation on Shopify stock is simply too rich.
Yes, I think Shopify is arguably the best growth company in the market right now. Not only is the company the unparalleled leader in a secular growth industry, but new products like Shop app underscore that this is also a relentlessly innovative company that will continue to add firepower to its growth narrative for the foreseeable future.
Still, under wildly optimistic assumptions, I cannot reasonably justify a $650 price tag on the stock today. As such, while I continue to own Shopify stock given the promising long-term growth trajectory, I’m not adding more here at all-time highs.
Instead, I think the game-plan is simple. Buy the next big dip. With both hands. And ride this long-term winner to huge gains over the next several years.
The Bottom Line on Shopify
No one talked about the launch of Shop App, and SHOP stock barely budged on the news. But, make no mistake, Shop App is a power move from Shopify that has tremendous long-term potential as a consumer-facing tool that gives it merchants native mobile app shopping experiences and funnels sales into its ecosystem.
In other words, it’s a big deal. Not a big enough deal to chase this red-hot rally in Shopify. But certainly a big enough deal to have strong conviction in buying the next dip.
Luke Lango is a Markets Analyst for InvestorPlace. He has been professionally analyzing stocks for several years, previously working at various hedge funds and currently running his own investment fund in San Diego. A Caltech graduate, Luke has consistently been rated one of the world’s top stock pickers by various other analysts and platforms, and has developed a reputation for leveraging his technology background to identify growth stocks that deliver outstanding returns. Luke is also the founder of Fantastic, a social discovery company backed by an LA-based internet venture firm. As of this writing, he was long SHOP.