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The pandemic-era e-commerce favorite is experiencing a severe slowdown.

Shopify’s (SHOP -5.59%) stock has dropped over 80% since its all-time high in November. The Canadian e-commerce services firm was once a hot stock, but bulls fled when its growth slowed in the post-lockdown era. Rising interest rates aggravated the agonizing fall.

But, after giving up all of its pandemic-era gains, is Shopify finally worthwhile to repurchase? Let’s revisit the company to determine if it’s too late to acquire its stock – or if it’s finally a turnaround opportunity.

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Shopify’s main advantages
Merchants can use Shopify’s platform to create their own online stores, accept payments, deliver orders, and manage their online marketing initiatives. It enables retailers to build their own online presence without having to join a congested third-party marketplace such as Amazon (AMZN -4.76%) or eBay. Shopify’s niche industry has grown into a mainstream one over the last decade.

Shopify has 162,261 merchants when company went public in 2015. It now serves “millions” of retailers around the world. Between 2015 and 2021, its yearly sales increased at a compound annual growth rate (CAGR) of 68%, from $205 million to $4.61 billion. It will also become profitable under GAAP (generally recognized accounting principles) in 2020 and 2021.

Shopify, according to the bulls, will continue to grow as merchants protest against Amazon and other huge online marketplaces. They also hope that its integrated Shop Pay payments system, dedicated logistics network, and its own point-of-sale (POS) technologies will help it retain consumers.

They’ll also point out that at less than six times this year’s sales, Shopify’s stock appears historically cheap. It traded for 35 times the sales it projected earn in 2021 at its high last November.

Shopify’s obvious flaws
As more merchants and buyers migrated online during the pandemic, Shopify’s growth in gross merchandise volume (GMV), gross payment volume (GPV), and revenue accelerated in 2020. Stimulus checks also encouraged shoppers to spend more money. However, Shopify’s growth slowed last year as pandemic-era tailwinds receded, and this slowdown is expected to linger through the first half of 2022.

Analysts predict that Shopify’s revenue will increase 19% this year, then 25% to $6.87 billion in 2023. These growth rates remain strong, but they suggest that Shopify’s “hypergrowth” days are finished.

As Shopify’s growth slowed, so did its gross margins, as it recognized a greater proportion of sales from its lower-margin Merchant Solutions sector. Its operational margins also fell this year as it increased its investments in logistics, R&D, analytics, sales, and marketing.

Instead, invest in other e-commerce stocks.
Shopify had a successful run during the pandemic, but its future is uncertain. It still competes with similar e-commerce service platforms such as BigCommerce (BIGC -5.61%), Adobe’s (ADBE -5.67%) Magento, and Amazon’s Selz, and its price-to-sales ratio isn’t particularly low in comparison to its industry peers.

For example, MercadoLibre (MELI -4.50%), a Latin American e-commerce behemoth, is growing faster than Shopify while boosting its gross and operational margins – but it trades at only four times this year’s revenues. BigCommerce is likewise predicted to outperform Shopify in terms of sales growth this year, although it trades at less than five times that estimate.


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