Going long on Shopify? Keep acquiring before the company releases its quarterly report next week. Herein lay the reasons.
Feb. 13, 2021
Shopify (NYSE: SHOP), one of the premier e-commerce platforms in the world, had a stellar 2020, seeing its stock price soar over 175%. This success was undoubtedly potentiated by the pandemic as more businesses were forced to pivot online. Recently, the company got an additional boost from signing a deal with Facebook to allow its users to use Shop Pay, its billing service, for checkout and payment on its platform (along with Instagram). A wise move as eMarketer estimates that this year’s shopping on social media platforms will rise by 35% in the U.S. to over $36 billion. Shopify will release its earnings on February 17 and we feel that now is the best time to acquire more shares.
Why should I buy Shopify?
In the U.S., Shopify grew its market share from 8% in 2017 to sharing the e-commerce market leader spotlight with WooCommerce, with the latter ahead by a slim margin. Is it better? On a lark, I clicked on Shopify’s site and was able to set up an online store, complete with a brand, logo, theme, and even products to sell within minutes! WooCommerce, on the other hand, took me to an intermediate popup that requested my WordPress credentials.
Shopify is easier to install and manage and is even less expensive as add-ons can add up quite quickly with WooCommerce. And speaking of add-ons, WooCommerce itself is nothing more than a plug-in for WordPress, which is okay if you already have a WordPress site up and running but if not, then you’ll need more expertise in setting up your online retailer.
Perhaps this is why Shopify has an impressive client roster with big names like Sephora, Tesla, and PepsiCo. Its platform is responsible for powering over one million businesses in more than 175 countries. These customers aren’t going anywhere as switching costs are substantial not only financially, but resource-wise.
By the numbers
Shop Pay is part of Shopify’s Merchant Solutions division and isn’t the only payment processing solution the company offers; it also sells point-of-sale (POS) devices for brick-and-mortar sales. The division also includes Shopify Shipping, which handles shipping logistics, and Shopify Capital, which is responsible for business loans and funding. Utilization of Shipping is up 6% and cash advances and loans from Capital are up 79% year-over-year (YoY). Merchant Solutions was accountable for nearly 70% of Shopify’s total revenue in the last quarter (Q3 2020) and is up over 132% YoY.
The company’s other division, Subscription Solutions, is responsible for collecting revenue from its three different subscription tiers that range from a basic store to one with more advanced reporting and management. Revenue here is up 48% and Shopify’s total revenue is up 96% year-over-year (YoY).
The company’s gross profit is up 87% at $405 million and its net income was $191.1 million or $1.54 per share, compared with the same time last year wherein profit was $216.7 million and Shopify had a net loss of $72.8 million or $0.64 per share. Additionally, it reported $6.12 billion in cash and marketable securities, compared with $2.46 billion at the end of 2019. Impressive growth no doubt, and it’s expected to shatter these achievements thanks to Q4 2020, which includes the holiday shopping season in which digital sales grew 49% YoY.
What lays ahead
E-commerce, still in its infancy, encompassed 15.8% of all retail sales in 2019. The pandemic accelerated online adoption by consumers and retailers and boosted that number to 21.3% in 2020. There’s plenty of room to grow and as a leading solution for online retailers, Shopify certainly stands to benefit. An analyst at Jefferies predicts that by 2025, Shopify will be generating revenue upwards of $10 billion as a result of growing gross merchandise volume that will generate additional fees for the company’s fulfillment and funding services. Some feel that even this estimate might be conservative.
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MyWallSt operates a full disclosure policy. MyWallSt staff currently holds long positions in companies mentioned above. Read our full disclosure policy here.