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Mark Yu
Mark Yu
Articles (435)  | Author's Website |

Shopify: A Promising Opportunity

The multi-channel commerce platform appears to be at the early stages of the e-commerce industry

November 07, 2019 | About:

Shopify Inc. (NYSE:SHOP) has had a terrific year so far. The stock price of the online platform has more than doubled this year, despite the company failing to meet expectations in its recent quarter. Amidst its aggressive push to develop its fulfillment centers, Shopify sees itself tripling its company-defined operating profits by year-end.

The market has treated Shopify as one of its darlings so far this year. On the back of consecutive earnings estimates beats, Shopify has rallied strong until its recent earnings report. The stock is down 1.6% following the third quarter after missing earnings estimates for the first time in the past couple of years. Shopify reported a loss of 29 cents per share in its recent quarter, compared to Wall Street’s earnings estimate of 10 cents per share.

Despite the tepid market reception to its earnings, the company is not at all exhibiting any signs of slowing down. For the quarter, Shopify reported a 45% increase in sales to $390.6 million compared to a year ago, and has announced that it has breached more than a million merchants around the world.

The company, which helps merchants reach their customers online to sell their products, has also declared a $1 billion plan for building its own fulfillment network over the next five years. Its $450 million investment in robot and software operator 6 River indicates that the e-commerce platform is pursuing this vision at a fast pace.

Despite the run-up in spending towards fulfillment centers, Shopify expects to improve on its non-GAAP earnings. For this fiscal year, the e-commerce platform expects it will deliver a non-GAAP operating profit of $32 million compared to $11 million a year ago.

Shopify is still a minnow compared to the e-commerce fulfillment giant Amazon, despite its 1000%+ return since its 2015 IPO. Now valued at $36 billion, the company remains a favorite among Wall Street analysts, who have posted 13 buy, 11 hold and two sell recommendations. Shopify now trades at 331 times forward earnings. Albeit at already high multiples, the current valuation is at a big discount compared to its five-year average of an eye-watering 600 times.

Perhaps the company’s recent decision to develop its own fulfillment centers has spooked some investors, which has opened a buying opportunity. The question remains if Shopify can imitate or even exceed Amazon’s outstanding success to this high expenditure path of building fulfillment centers for its more individualized merchants. Unlike Amazon, Shopify allows merchants to operate their own unique websites.

Disclosure: No shares in Shopify.

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About the author:

Mark Yu
I'm a doctor in physical therapy (DPT) with an interest in finance. Not a registered financial analyst. Value seeker. Long only. Global investing. Long-term investing.

I attempt to dissect one company filing every day. I dislike goodwill and intangible assets.

One company (review) a day keeps the speculation (hopefully) away.

"The only source of knowledge is experience."

"I have no special talent. I am only passionately curious." - Albert Einstein

"To strive, to seek, to find, and not to yield." - Alfred, Lord Tennyson

"We find one a year, that's terrific. You do not need a hundred or a thousand great investment ideas to do well. You need a couple. And, the discipline is the most important thing." - Warren Buffett

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