Shopify (NYSE:SHOP) stock is down 52.76% as investors cool on the global e-commerce player. A sell-off in tech growth stocks and a temporary slowing in e-commerce hurt the stock.
Shopify and other e-commerce companies in the space are facing tough year-on-year comparisons. Shopify soared during the latest pandemic that forced businesses to close up shop. The company tacked on $25 billion in only a few short years, and shareholders clamored for more! But once the hype wore off, investors realized the value of buying at a lower price point.
In addition, the company’s growth is slowing. Revenue for the full year of 2021 was $4,611.9 million, a 57% increase over 2020. While that may be impressive, the company finished with year-on-year growth of 86% in 2020 over 2019. The company also does not have a portfolio like other tech giants such as Amazon (NASDAQ:AMZN). Amazon has a huge ecosystem of services, and consumers worldwide use them. Which naturally, in turn, makes Amazon more investable. Shopify does not have the same ecosystem.
When competing with established brick and mortar merchants, SHOP stock will also suffer due to competition provided by WooCommerce, Wix (NASDAQ:WIX) and Squarespace (NYSE:SQSP). In addition, Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL) has also thrown its name into the ring. E-commerce is a market that Apple (NASDAQ:AAPL) has been rumored to be interested in for quite some time now and it might increase its exposure to the space in the near future.
Alphabet has been a major competitor in the digital markets giving it an advantage over its competitors due to its wealth of experience and innovation in technology.
Shopify’s profitability and valuation are poles apart at the moment. Although the company is growing, it is too richly valued. Management is predicting revenue growth will slow in 2022. The exact percentage decline isn’t specified. The comparisons to Amazon are a bit too early at this stage.
If Shopify’s stock continues to drop, it could be an opportunity. It has launched a “Shopify Fulfillment Network,” where companies can outsource their orders. Plus, Shopify currently has no digital ad business. That could be a major source of potential revenue.
However, the current market is volatile, and Shopify still needs to fall further to reflect its fundamentals. Software providers with rich valuations are not in a great position. Therefore, please wait for the stock to fall further before considering buying in.
On the publication date, Faizan Farooque did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
