stock prices Shopify (store -14.91%) It was completely demolished recently. After hitting an all-time high of $1,762.92 per share on November 19, 2021, Shopify stock is now down an astonishing 70% in less than six months.
In retrospect, the Shopify stock will likely be a scoop on itself. But his assessment is finally showing signs of making more sense for investors who have been waiting for the opportunity to consider Shopify. This is why Shopify is my top-grossing stock to buy in May.
An overview of e-commerce
Perhaps the simplest reason to invest in Shopify is to believe in transforming small business and retail sales online. The COVID-19 pandemic has accelerated the adoption of e-commerce. But online sales are still a small slice of the total retail pie.
According to the Commerce Department’s Bureau of Statistics, e-commerce sales totaled $870.8 billion in 2021 and accounted for 13.2% of total US retail sales, compared to 13.6% of total retail sales in 2020. In 2021, Shopify provided 10.3% of total retail sales in the United States. Retail sales in the United States. US Ecommerce Sales This means that Shopify fueled 1.36% of all US retail sales – which is staggering, given how young the company is.
Investing in Entrepreneurship
Estimates vary, but small businesses make up roughly 40% to 50% of US GDP. Shopify has big customers. But the company’s ethos revolves around Small and Medium Enterprises (SMBs). After all, its mission is to “make trade better for all”. In this sense, Shopify attempts to enable individuals to get creative and build a business without the overhead required of a physical store.
While you love companies Wix.com or Square Space Arguably better than Shopify for sites that aren’t all about selling something, the easy-to-use cloud-based Shopify software takes the cake for serious sellers. Shopify offers optional when it comes to the look and feel of the site, which checkout process to use, which shippers to use, customizing discounts — you name it. Its three different payment plans make it easier to access more services as the business grows.
For example, the $299 per month Advanced option provides more employee accounts, inventory locations, and advanced reports, as well as automates some e-commerce functions, contacting third-party shippers to provide rates, and providing discounts on credit card rates and transfer fees.
What I love most about Shopify is that it’s an easy-to-understand business, even if you don’t actually use it from a merchant’s perspective. Shopify makes money in two ways – from subscription solutions and merchant solutions. Subscription solutions grow as more customers open their Shopify store or when existing customers upgrade from the basic $29 per month plan to the $79 per month Shopify plan or from the Shopify plan to the advanced plan mentioned above. Subscription solutions accounted for 29.1% of 2021 revenue and 31% of 2020 revenue.
Shopify makes most of its money from Merchant Solutions, which had over $1 billion in revenue in the fourth quarter of 2021. Merchant solutions are fees that Shopify customers incur for shipping, payment, or point-of-sale tools. The main driver of Merchant Solutions is Gross Merchandise Volume (GMV). GMV is a great way to say the total dollar amount that goes through Shopify and related apps and channels.
Like ebay And other e-commerce platforms, Shopify makes money from transactions. So the more money merchants earn, the more Shopify will have. In this sense, it’s not just about customers opening more sites with Shopify – it’s also about those customers being able to grow their business.
What makes the Shopify business model attractive is that Shopify generates a base amount of money from signups, but then gets a raise from its customers via the merchant solutions division. So, Shopify and Shopify merchants have the same interests, and Shopify wins when its merchants win. This is a very different business model from other SaaS businesses like Adobe — who don’t really care whether their customers are doing well, as long as they’re paying their Creative Cloud subscription bill.
An expensive but attractive investment opportunity
While the buy case is compelling for Shopify, the stock has a futures price-to-sales ratio for 2023 of 5.29 and a forward price-to-earnings ratio for 2023 of 66.06. It’s by no means cheap, although, as mentioned, it’s less than 70% off its all-time high.
But for investors who feel like they’ve missed out on Shopify, withdrawing could be the perfect time to open a junior position in an exciting high-risk, high-return business with a potentially bright future.