Shopify (a store -2.17%) It has lagged significantly over the past year as the e-commerce giant’s shares have fallen 75% in the subsequent 12-month period. The company’s financial results suffered as the pandemic tailwinds blatantly stalled, and economic issues like inflation didn’t help either. Although the market continues to penalize Shopify, the company showed some encouraging signs during its most recent quarterly update.
Management appears confident that the tech giant’s long-term prospects are sound. Let’s take a look at some of the encouraging words Shopify president Harley Finkelstein said during the company’s second-quarter earnings call and what that might mean for investors.
Building a solid growth foundation
Net losses and economic problems are just some of the issues Shopify deals with. Given these challenges, it is no surprise that many investors decide to take their money elsewhere. But as the old saying goes, what doesn’t kill you makes you stronger. Shopify believes it is taking steps that will only enhance its business and help it lay a solid foundation for the future. As Finkelstein said, “We think we’ll come out of 2022 and this overall cycle stronger, and our expectations for long-term growth and profitability remain high.”
There is a lot to unpack there. First, why does the company think it will emerge stronger from the current cycle? Here’s just one reason: Shopify is taking steps to help its customers – the merchants who run online storefronts – to better serve their customers and reach a wider range of consumers around the world. Shopify’s efforts along these lines include Shopify Markets, a cross-border management tool it launched last year to allow merchants to customize their storefronts for specific geographies from a single store.
Shopify continues to go global as well, offering various tools – including Shopify Payments and Shopify Shipping – in countries like France, Italy, and others during the second quarter.
How will these (and other) initiatives allow Shopify to come out of the current ordeal even stronger? There is no doubt that retail spending will increasingly move to e-commerce methods. This is why the company’s long-term growth prospects are attractive. Estimates vary, but according to some forecasts, the e-commerce market will be worth over $27 trillion by 2027, compared to $10.4 trillion in 2020. Shopify is helping merchants take advantage of this trend. After all, e-commerce is a global phenomenon.
The ability of merchants to do business around the world will positively affect Shopify’s total merchandise volume (GMV, the total value of transactions made on its platform). This will push your Shopify revenue in the right direction. Finkelstein also mentioned Shopify as a “leading position” in the industry. Last year, the company’s share of the US retail business was 10.3%, second only to the undisputed leader, Amazon.
What is your investment schedule?
Shopify isn’t out of the woods yet, not as long as we’re still dealing with economic (and other) problems. For those looking to make a profit on their stock overnight – or even over the next year – I wouldn’t recommend buying today. But for people with a much longer investment horizon, say five years or more, Shopify is still a solid choice. Finkelstein was right that the chances are still huge.
The company has already made solid headway in its market while building a competitive advantage in the process. Shopify benefits from higher switching costs because the time, energy, and money it takes merchants to develop and maintain online storefronts are investments. These traders will be hesitant to switch platforms. The company can strengthen its grip on its existing group of customers and attract new customers as it continues to add new features and services to conduct business efficiently.
A growing customer base, along with an expanding industry and a solid moat, will help Shopify deliver returns that outpace the market in the long run. It still pays to continue working with the company despite the challenges it faces.
John Mackie, CEO of Whole Foods Market, an Amazon company, is a member of The Motley Fool’s Board of Directors. Prosper Jr. Pachini has positions at Amazon and Shopify. Motley Fool has positions at Amazon and Shopify and recommends them. Motley Fool recommends the following options: long January 2023 calls at $1,140 on Shopify and short January 2023 calls at $1,160 on Shopify. Motley Fool has a disclosure policy.