Down 74%, should savvy investors buy Shopify stock during the bear market?
The e-commerce industry has been in the worst mess in recent memory. On the one hand, it makes a lot of sense. The pandemic has pushed many people – rather unwittingly – to resort to online shopping, accelerating the secular trend and darkening the overall growth picture.
But now that the global economy has largely reopened, the tables have turned a bit. According to US Census data, e-commerce sales accounted for 14.3% of total retail sales in the first quarter of 2022, down 14.9% from a year ago and marking its second consecutive quarterly decline. .
Of course, these latest trends have had a negative impact on businesses focused on online shopping like Shopify (STORE 11.10%), which has seen its share price fall 74% since the start of the year. The company, which enables entrepreneurs and businesses to easily create and customize online stores, released its latest earnings report on July 27, offering investors additional insight into the dynamics of the current e-commerce arena. .
In light of unfavorable macro conditions, is it time for savvy investors to buckle up and buy shares of the leading e-commerce software stock?
Shopify continues to struggle
Upon exit in the second quarter, the e-commerce software leader increased total revenue by 15.7% and posted a net loss of $0.95 per share, creating a significant gap to its earnings per share positive of $0.69 in the same quarter last year. The dismal revenue and net income results, which both missed Wall Street forecasts, came shortly after the company said it would cut its workforce by 10%.
Unsurprisingly, management noted in the earnings release that high inflation and the rising interest rate environment will hurt its business for the remainder of the year. The company called 2022 a “transition year,” in which the e-commerce industry returned to its pre-COVID trendline.
On a more positive note, Shopify’s Monthly Recurring Revenue (MRR) climbed 12.7% year-over-year to $107.2 million, signaling that more merchants are still joining the platform. , and its gross merchandise volume (GMV) increased by 11.1% to close at $46.9 billion. . GMV represents the total dollar value of orders facilitated through the Shopify platform.
For fiscal 2022, Wall Street analysts estimate that the company’s total revenue will rise 19.9%, to $7.1 billion, and earnings will return to negative territory, at -$0.07 per year. stock, up from a positive $0.82 a year ago. Next year, analysts predict its revenue will grow another 21.9% and the company will report positive earnings of $0.06 per share.
Nonetheless, the pandemic has really muddied the waters of Shopify’s growth story, and it will likely take a few years for the situation to fully settle. But given its strong market positioning and the upward trajectory of the e-commerce market, I think we will see a day when the company is consistently profitable.
And now that it’s trading at 9.2 times the sell, which is easily below its five-year average price multiple of 32.7, it might be a good idea for investors to check out the stock.
What should investors do now?
Although not apparent at this time, Shopify is still favorably positioned for robust growth in the years to come. The company is responsible for 31% of US websites that use e-commerce technologies, making it the largest e-commerce software platform nationwide, and its global market share is 21%. second behind its competitor WooCommerce.
Knowing this, and also being aware that the global digital commerce market is expected to grow at a compound annual growth rate (CAGR) of 15.1% through 2030, investors should be intrigued by the new sale of the company. In my opinion, Shopify remains a wonderful long-term game for those willing to endure short-term growing pains.
Luke Meindl has no position in the stocks mentioned. The Motley Fool holds posts and recommends Shopify. The Motley Fool recommends the following options: $1140 January 2023 Long Calls on Shopify and $1160 January 2023 Short Calls on Shopify. The Motley Fool has a disclosure policy.