The past year has been unstable for Shopify ‘s ( SHOP 1.09% ) Investors witnessed the stock price drop to $45.50 initially, followed by a significant increase to $91.57 in the following months. Currently, the stock has decreased to approximately $63.
The current fluctuations in the stock market indicate that investors who are optimistic about Shopify’s future are balanced with those who are cautious. The optimistic investors see a promising future in the expanding e-commerce market, while the cautious ones are worried about Shopify’s high valuation.
This article aims to provide guidance on what actions current and prospective investors should take regarding Shopify stock.
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Contents
A different option for business partners
One of the most significant developments in the past twenty years has been the expansion of the e-commerce business sector, driving the success of some of the most notable achievements of our time. Amazon and companies like Shopify have greatly profited from this favorable trend.
Although both companies may appear similar to the average consumer, they are actually distinct entities with contrasting business strategies. Amazon runs an online marketplace where it sells products both directly and through third-party sellers to customers. By utilizing a mix of first-party and third-party sales approaches, Amazon is able to benefit from a wide range of advantages, catering to its clientele and earning commissions from merchants for sales made on its platform.
The dynamic between Amazon and its merchants can be described as a love-hate relationship. Merchants rely on Amazon’s extensive customer base and additional services such as fulfillment and logistics to expand their businesses. However, they are also vulnerable to the whims of the platform. tech Because Amazon establishes the regulations, it has the power to potentially work against the benefit of its sellers. Additionally, Amazon competes directly with these sellers by selling comparable items at reduced prices, leveraging its significant buying influence and knowledge of past sales data.
In contrast, Shopify is a SaaS company that primarily focuses on offering tools to support merchants in achieving success in the online realm. Unlike Amazon, Shopify gives merchants complete control over their customer data, brands, websites, and more, empowering them to have authority over their own businesses.
Moreover, merchants have the ability to tailor their online stores, websites, and services according to their specific business requirements, enabling them to provide improved service to their customers. In contrast to Amazon, where merchants are obligated to adhere to Amazon’s determinations regarding store design and other services, this offers a significant advantage.
Shopify offers a key feature by assisting merchants in becoming omnichannel, enabling them to sell their products both online and offline. Merchants can start selling online through the Shopify platform and then easily extend their business to physical stores using Shopify POS, which includes hardware and software tools.
In summary, Shopify has become essential by ensuring that its goals are in line with the goals of its merchants.
Expanding internationally, and to every corner of the world
Shopify has shown significant growth as a stock from 2015 to 2023. revenue The tech company’s valuation has surged significantly from $205 million to $7.1 billion. Due to its substantial growth, certain investors are apprehensive about the company’s future growth prospects.
I believe those worries, although reasonable, may have overlooked the overall perspective. For instance, Shopify facilitated $236 billion in gross merchandise value (GMV) in 2023, accounting for only 3% of the entire U.S. retail market expenditure of $7.3 trillion. There is still significant room for growth without fully tapping into the potential.
In order to achieve this goal, the company is making significant investments in expanding its physical store business through its point-of-sale (POS) hardware and software products, which have shown encouraging initial outcomes. For instance, revenue generated from physical stores amounted to $411 million in 2023, a five-fold increase from the figures reported in 2019. By consistently introducing new innovations and features that assist customers in effectively conducting offline sales, the company is poised to capitalize on various growth prospects. This includes catering to current merchants who are transitioning from online to omnichannel operations, as well as appealing to new merchants with a background in traditional offline retail.
In addition, Shopify is striving to establish itself as a prominent player in the worldwide e-commerce industry by broadening its reach. This involves introducing its top-notch resources, like payment solutions, point-of-sale systems, and financing options, to new markets to support international merchants in achieving success. Moreover, it enables current users to expand their business globally through Shopify markets, a suite of features designed to facilitate cross-border sales. To provide context, global online sales amounted to $5.8 trillion in 2023, excluding traditional retail transactions.
Put simply, Shopify has a plethora of opportunities that will keep it occupied for the next ten years.
A reputable business with a higher-than-average price point
Finding a reputable company with promising future growth is only one part of making a wise investment decision. It is equally important for investors to take into account the valuation of the stock they are purchasing. In this case, Shopify is trading at a price-to-sales ratio of 11.2, which is significantly higher than Amazon’s P/S ratio of 3.
Investors may find it acceptable to invest in Shopify at a higher price, but paying a significantly high multiple may not be advisable, considering the company’s promising future potential.
Implications for investors
After becoming a publicly traded company, Shopify has shown impressive growth. Additionally, it is in a strong position to continue expanding in the future by taking advantage of opportunities both domestically and internationally.
Despite the positive aspects being taken into account in its higher valuation, investors are not finding any deals when purchasing the stock currently. In general, although it may not be an advisable purchase at the moment, considering the potential growth in the future, it is not a recommendation to sell for existing shareholders. It is suggested to hold onto the stock for now.
