Decrease of 24% in Stock Value Makes it an Attractive Purchase for Long-Term Investment
Earnings season has been bustling, but artificial intelligence isn't the only topic causing a stir. Shopify's (SHOP -6.41%) spectacular Q4 report has everyone talking, with the stock surging 20% this year. Despite this, it's still 24% off its all-time high. Let's dive into why this stock might still be a valuable addition to your portfolio.
The Unseen E-commerce Mastermind
While Amazon dominates U.S. retail e-commerce, Shopify's merchants collectively give Amazon a run for its money. In Q4 2024, Shopify processed $94.5 billion in GMV, just falling short of Amazon's $123 billion online sales and third-party sales. Though it's got a long way to go, Shopify's growth rate is impressive – 26% compared to Amazon's 7-9%.
Shopify may not sell products directly, but it's the powerhouse behind small and big e-commerce players. Initially known for its subscription services, Shopify's real income comes from payment processing. As they onboard more clients and services, their revenue streams diversify and they establish themselves as a powerful e-commerce force.
Q4 saw an impressive 31% revenue increase year-over-year, with profitability sharply improving – a full $1.1 billion in operating income in 2024, from a $1.4 billion loss in 2023. Shopify also generated $1.6 billion in free cash flow. This▲ boosted investor confidence.
A Confident Future
Shopify's future looks bright thanks to its approach to being all things to all e-commerce merchants. Taking a cue from Amazon, Shopify's goal is to cater to merchants of all sizes, with a multitude of options that span the e-commerce spectrum. It offers tech-heavy yet adaptable solutions, allowing merchants to switch between services and packages at ease. Its integration capabilities cater to both digital and physical platforms, making Shopify the go-to destination for omnichannel retailers – the future of retail.
Q4 saw strong results across the board. International revenue, offline revenue, and B2B GMV each saw impressive growth – scoring 33%, 33%, and over 140%, respectively. Shopify served over 875 million shoppers and over 200 million shoppers used Shop Pay services, leading to a 50% GMV increase in 2024.
E-commerce sales are forecasted to reach 20.3% of total retail sales in 2024 and 23% by 2027[4]. Shopify's commitment to merchant success, operational efficiency, and innovative AI and payment solutions puts it in a prime position to capture market share and keep growing.
Shopify's previous misstep – an overzealous expansion into logistics – has been corrected. Now back to profitability, investors can see that Shopify's management is capable of admitting mistakes and correcting them successfully.
A Mixed Bag of Valuation
The primary issue holding some investors back from embracing Shopify is its high valuation. Shopify has a forward price-to-earnings ratio of 67 and a price-to-sales ratio of 18. This is expensive, and Shopify might not appeal to risk-averse investors. However, if you're comfortable with risk and have a long-term outlook, Shopify could reward patient investors. One strategy is to invest slowly using dollar-cost averaging, taking advantage of cheaper entry points as they arise.
Despite Shopify's impressive growth and earning reports, some investors might be deterred due to its high valuation with a forward price-to-earnings ratio of 67 and a price-to-sales ratio of 18. However, for those comfortable with risk and having a long-term perspective, investing in Shopify could potentially yield rewards in the future. Utilizing a strategy like dollar-cost averaging, investors can purchase shares gradually at different price points, taking advantage of potential cheaper entry points.
Shopify's focus on being an all-inclusive platform for diverse e-commerce merchants is helping it gain a competitive edge in the market. With its ambitious goal to cater to merchants of all sizes and offer innovative AI and payment solutions, Shopify is well-positioned to capture market share and continue growing, especially as e-commerce sales are projected to reach 20.3% of total retail sales by 2024 and 23% by 2027.
Investing in stocks like Shopify often requires long-term patience and nerves of steel, especially considering the high valuation. However, Shopify's commitment to its merchants' success and operational efficiency, coupled with its impressive financial performance, makes it an attractive option for investors who see its potential for future earnings and growth.
Finance professionals and investors alike are paying close attention to Shopify's strategic finance decisions, as the company continues to balance its growth and profitability goals. With artificial intelligence playing a vital role in retail finance, Shopify's ability to leverage intelligent technology to improve its services and drive revenue could be a game-changer for the company in the coming years. Bringing intelligence to its finance operations could open up a new wave of opportunities, as Shopify continues to outperform their competitors in the e-commerce space.
