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Shopify Stock Analysis - Undervalued or Still Overvalued?

Shopify Stock Analysis - Undervalued or Still Overvalued

Shopify was one of the best-performing stocks in the past one and two years, for example, Shopify stock, increased 104.58 in the past 12 months as well as 447.21 in the past 24 months. But recently Shopify stock did drop as much as 18.6 between its recent peak on February 16 2021 and its closing price on April 16. 2021.

Shopify Stock Analysis

Now past performance does not guarantee future returns. So it's very important that we all do our own research and do our own due diligence. First here are some of the very important questions. Many of us ask: first, does Shopify still have great long-term business prospects? Second, is Shopify stock still a buy and third is Shopify stock under value fairly value or still overwhelm you right now. 

First, I'm going to talk about what is Shopify's business model. Second, I will talk about Shopify versus amazon, who is winning right now? Third, I'm going to talk about Shopify's three growth catalysts. Then I will talk about Shopify's three risks that we should consider then. Before the end of the review, I'm going to talk about Shopify's intensive value calculation, so we will know where Shopify is currently undervaluing fairly well or overwhelm. Then I'm going to talk about am I buying Shopify stock?

What is Shopify's business model?

Let'S start so what is Shopify's business model? Shopify'S business model is very different from amazon's. Shopify is not an online retailer, and it's not an online marketplace. Shopify adopts a direct-to-consumer business model. Shopify'S focus is to help merchants and brands to sell their products directly to customers online skipping the middlemen such as retailers and wholesalers.

Many merchants and brands use the Shopify platform because they want to start selling their products online very quickly without hiring developers to make their online store. Also, merchants pay a very low subscription fee to start ranging from 29 dollars per month to 299 dollars per month for small and medium-sized businesses for large businesses and large brands. They typically pay 2 000 plus per month using the Shopify Plus plan. Shopify also provides greater control over inventory and has much greater control over customer relationships. Shopify is known for its shop shipping services using third-party suppliers, one of Shopify's biggest competitive advantages is allowing merchants to sell products through multiple sales and marketing channels, including Facebook, Instagram, Google, Pinterest Walmart, and even tic.

Now Shopify has two main revenue sources: first, subscription revenues, typically small and medium-sized merchants, or brands pay, ranging from 29 dollars per month to 299 per month for large businesses and large brands. They often pay over two thousand dollars per month. The second main revenue source is merchant solution, rallies, meaning fees generated from Shopify payments, Shopify shipping, and fulfillment services and Shopify capital supervised business model is very different from amazon, amazon runs the biggest online retail store and marketplace in us. Amazon'S online retail store is a search engine that allows you to find products online. That you're interested in how Shopify works is that Shopify merchants use social media such as Facebook, Instagram, and Google to market their products online.

This is what we call social commerce. Shopify works. Very well for entrepreneurs, as well as small size and medium-sized businesses, because of how easy it is to set up an online store and because of the much smaller optimum cost to set up stores.

Shopify versus amazon

Shopify versus amazon, who is meaning right now. Let me show you this article from Bloomberg. Shopify is in our top ten in the flagship fund. We're very excited about social e-commerce. Shopify is one of the biggest and most important plays on social, social commerce. Much better play than amazon we're trying to figure out how Amazon is going to deal with this notion of individuals, seeing something on Instagram or elsewhere, on Facebook or on Twitter, or on snap and just buying there. That'S a Shopify-enabled commerce opportunity and we think it's going to be big.

We see, of course, tick. Tock doing the same thing, lining up with Walmart, so we think it's going to be a pretty explosive space. We know. Shopify is a very expensive stock, but because of these viral networking opportunities around commerce, we think it's the most exciting one probably out there because Shopify doesn't care who wins it.

It'S going to be involved with many, if not most, of all of the sites that are going to be powering up commerce. It'S interesting! You bring up amazon because every day becomes more and more apparent that these two are rivals. Although Shopify goes to, you know, used to go to great pains to kind of separate itself. Do you think there is a day where amazon really views Shopify?

A huge competitor, do you think it could grow to the size and scale of an Amazon? We do, and I think the question will become for amazon if social commerce is going to continue to take share from e-commerce. What is amazon going to do to insinuate itself into this business? It doesn't have a social network itself. It would have to be more on the back end again, fulfillment by amazon, and so forth.

I think what will happen is amazon and jeff. Bezos has always said that he thinks AWS could be as big as retail, but what he doesn't say is that AWS, so amazon web services, which is a technology platform, is going to be so much more profitable than retail, so amazon and Shopify will probably. I don't, I don't think they'll be meeting eye to eye. If you look at this here, it compares Shopify's market share with amazon's market share in us. Amazon is the largest e-commerce company in us, with a market share of 39 Shopify is the second largest e-commerce company in us, with a market share of 8 percent. This is from an e-marketer. If you look at this article here, you can see that u.s e-commerce, as a percentage of total retail sales, is expected to grow going forward. This means that it will benefit the largest e-commerce players, including Amazon and Shopify in us now during the pandemic, superfine has gained a lot of new merchants, especially small size and medium-sized merchants, who were forced to ship their sales from brick and mortar retail stores.

To all nine retail stores now Shopify does not compete with amazon's business directly, but I will talk about this later on in this article Shopify's. The first growth catalyst is the e-commerce growth in us and worldwide. Let me show you this u.s e-commerce penetration article. Here you can see that e-commerce sales, as a percentage of total sales, have been increasing steadily every year between 2010 and 2020.

Right now, Shopify is benefiting from the increasing number of merchants moving to online stores and selling things online. So if you look at these five years, revenue growth chart right here. Shopify'S rarely grew at a compound annual growth rate of 65.63 each year between 2016 and 2020.

Now Shopify 2020 revenue growth was exceptional. Shopper 5 had a revenue growth of 86 in 2020 because of the cover 19 potential, but excluding Shopify's family growth. In 2020, Shopify's revenue was grown at a compound annual growth rate of 59.45 each year between 2016 and 2019. This is from the q4 2020 earnings call total revenue for the full year. 2020 was 2929 5 million and 86 percent increase over 2019. Within this subscription solutions. Revenue grew 41 to 98.8 million, while merchant solutions revenue grew 116 million to 2020.

Shopify only became profitable recently. For example, Shopify's operating income for 2020 was 90.2 million or three percent of revenue versus an operating loss of 141.1 million or nine percent of revenue for 2019 Again, Shopify was one of the companies that benefited the most from the covert night epidemic because the pandemic accelerated online commerce, especially social commerce. To several years ahead, Shopify CFO said this: Shopify was prepared to ship the features that are merchants needed during the pandemic because we had invested for several years in a future that arrived early with the solution of online commerce, the pandemic forced small and medium-sized businesses to Online e-commerce, now even after the patents over when all the retail businesses are back to normal.

Personally, I believe that merchants will continue to invest in online commerce. This is from the q4 2020 earnings release. Here is management's 2021 outlook. Our outlook coming into 2021 assumes that as countries roll overseas in 2021 and populations are able to move about more freely, the overall economic environment will likely improve. Some consumer spending will likely rotate back to offline retail and services and the ongoing shift to e-commerce, which accelerated in 2020 will likely resume a more normalized pace of growth for the full year 2021.

We expect subscription solutions, family growth to be driven by more merchants around the world, joining the platform in a number lower than the record in 2020, but higher than any year prior to 2020. The growth rates of subscription solutions and merchant solution revenues are to likely be more similar to each other than in the recent past, as we do not expect the search in GMV that drove merchant solutions in 2020. To repeat. As a result, we expect that we will continue to grow revenue rapidly in 2021, albeit at a lower rate than in 2020. 

Shopify'S second, growth catalyst is its increasing GMV and number of merchants using the Shopify platform. Shopify'S success is entirely dependent on the number of merchants using the Shopify platform and the second GMB is gross merchandise volume growth from Shopify's merchants. I want to show you this here. It shows that Shopify's increasing GMV growth, which is a very good sign. The enormous drum of GMV growth in 2020 was because of cover 19 pandemics that benefited Shopify the most, but we should expect that supervised GMV growth to normalize, similar to supervised gm record before cover night king started as the best things become more available to everyone. This is from the 2020 annual report that shows the number of merchants using Shopify plans.

At the end of 2020, we have more than 1.7 million merchants around the world reaching further economic independence with Shopify approximately 3 000 merchants. Strong Shopify, plus our subscription plan for larger and more complex merchants, brings the total number of plus merchants to more than ten thousand at year-end. According to this article, Shopify's five biggest brands include apps in bath bud, which is the stock ticker. One of the largest brewing companies in the world, Pepsi, Nestle, Louis Vuitton, and even Tesla - here's the important part.

This is from the 2020 annual report. The large majority of our merchants are on subscription plans that cost less than 50 dollars per month, which is in line with our focus on providing cost-effective solutions for early-stage businesses. While most merchants subscribe to our basic and Shopify plans. The majority of our GMV comes from merchants, subscribing to our advanced and Shopify plus plans virgin retention rates are also higher among merchants on higher price plans. In my opinion, even after the pattern is over, I believe that more small and medium-sized businesses will continue to invest in online stores because they want to sell their products through multiple sales channels, including Facebook, Instagram, Pinterest, Amazon, marketplace, and eBay.

I believe that Shopify should continue to benefit from this economic trend. Shopify'S, third growth catalyst is its international expansion in the future. If you look at this revenue breakdown based on geographies right here, you can see that Shopify still makes most of its revenues from North America, especially in the US. For example, in 2020, 66.7 percent of supervised revenue came from the united states right now.

The U.S e-commerce market is not fully saturated. Yet, US: e-commerce sales, as a percentage of total retail sales, is still much lower than in China. For example, e-commerce sales in the US were approximately 14 by q4 2020 E-Commerce sales in china were approximately 44.8 in 2020.

Personally, I believe that Shopify has a lot of growth potential outside of North America, especially in Europe and Asia. This is from the most recent earnings call and third international expansion, 2020 demonstrated just how big our accessible market is. Year-Over-Year GMV growth by our international merchants, outpaced overall GMV growth and our international merchant base grew within the overall mix in 2021. We are focusing halfway beyond our core geographies to bring our capabilities to more merchants. We expect to continue to localize our solutions in countries where we have established a foothold and increased investments in sales and marketing to bring Shopify to more merchants around the globe.

But generally, our international strategy, whether it's in Asia or is in Europe or anywhere else, is the same. We want to be the best product in the market in those geographies, and so we're not just going to simply go into those markets just for the sake of it. In the short term, Shopify is still focusing on its current markets that have the strongest position. For example, the united states, but in the long run, Shopify will continue to expand more in other core market staff, strong positions. Now, let's talk about Shopify's risk.

Shopify'S first risk is that we should not expect Shopify to report large profits anytime soon. If you look at this financial summary right here, you can see that 2020 was Shopify's first year to generate a net profit. Now Shopify is expected to reinvest most of its capital in its Shopify for FEMA network, the shop app, including Shopify pay and international expansion management. Even said this, three key areas of incremental investment in 2020 are Shopify for FEMA network, the shop app, and international expansion similar to amazon in the early growth stage. We should not expect Shopify to have very consistent free cash flow growth anytime soon.

Shopify's second risk is that Shopify's biggest competitor is still amazon, even if Shopify doesn't compete with Amazon directly Shopify adopts a social commerce business model compared with amazon's, which adopts more traditional e-commerce, an online retailer,s and marketplace business model. As of now, Amazon, marketplace, and Shopify are the two most popular e-commerce platforms in the US. Most small size and medium-sized merchants choose either to focus on the Amazon marketplace or to focus on Shopify. Not many merchants focus on both here are some of amazon marketplace biggest competitive advantages over Shopify amazon has the largest customers based in the US. Amazon is essentially a search engine.

Most people search their products on amazon first before using other platforms. If you're a merchant, it's easier to have customers find your products on amazon, because amazon, as I said before, is a search engine. Amazon FBA fulfillment by amazon is much larger and established than Shopify's for FEMA network. Now here are some of Shopify's biggest competitive advantages over the Amazon marketplace. Shopify'S e-commerce platform is very easy to use and very user-friendly.

The iPhone cost is also very low to start your own online retail store. If you use the Shopify platform, you have much greater control over your own branding, your own online retail, store your customer relationships, your product sourcing, such as drop shipping, your product management, and how you market your products through social media such as Facebook, Instagram and even google. The risk is that mergers can choose to invest more in the Amazon marketplace instead of Shopify to sell their products online if they find that the return on capital on the Amazon marketplace is higher. Shopify'S third risk is that Shopify's revenue growth rate going forward will likely be lower than its revenue growth in 2020, supervised 2020 value growth was exceptional. Shopify had a revenue growth of 86 in 2020 because of the epidemic that benefited Shopify, the evenest Shopify's management settings. We expect that we will continue to grow revenue rapidly in 2021, help it at a lower rate than in 2020. 

Shopify Interest Value Per Share

Now, let's talk about Shopify's interest value per share, so we will know whether Shopify stock is currently undervalued, fairly value, or overwhelming right now, first, I define Shopify's intrinsic value as its future cash flow discontinued present day. If you look at this interest value calculator right here, I've made several key assumptions. First, we're using Shopify's cash flow from operating activities, not free cash flow, because Shopify doesn't have a sustainable or consistent free cash flow growth. Yet Shopify is still in the very early growth stage.

Shopify still has to reinvest most of its capital back into its businesses, including Shopify for FEMA network shop, app international expansion in order to grow further. The second key assumption is that we're using a 50 to 60 percent cash flow combined annual growth way each year over the next five years. The third key assumption is that we're using a 10 discount rate, this is higher than the 78 whack discount rate from finbox. 

The fourth key assumption is that we're using a 50 price to cash flow, multiple to estimate Shopify's terminal at the end of the 5 years, this is much lower than Shopify's current 350 prices to cash flow, multiple, but higher than amazon's current 26.24 prices to cash flow. Multiple, because I expect that supervised cash flow growth and revenue growth to be higher than amazon's growth. Now, let's go over each of these case scenarios. If you look at the worst-case scenario here we're using a growth rate of 50 each year, if we project a Shopify cash flow to the next five years and then discounted to the present day, Shopify's intrinsic value as a whole company should be around 97 billion Us dollars, and if we divide this by the number of shares outstanding, Shopify's interest rate pressure should be around 790 dollars per share. 

I'm giving this a probability of one-third under the normal case scenario, we're using a growth rate of sixty percent each year over the next five years. If you project Shopify's cash flow over the next five years and then discounting to the present day, supervised interested you as a whole company should be around 133 billion us dollars. And if we divide this by the number of shares outstanding, Shopify's interest, value per share should be around 1086 dollars per share. I'm giving this a probability of one-third under the best case scenario we're using a growth rate of 65.

If we project Shopify's cash flow to the next five years discounted to the present day, then Shopify's interest value as a whole company should be around 155 billion us dollars. If you divide this by the number of shares, outstanding Shopify's, increasing value pressure should be around one thousand. Two hundred sixty-four dollars per share, I'm also giving this a probability of one one-third so to calculate Shopify's, fair interest value, we're going to multiply each of these case scenarios by each of their probabilities one-third each based on my estimate. Shopify is very interesting. Value as a whole company should be 128 billion us dollars compared with its current market cap of 147.3 billion US dollars of April 16, 2021, at the time making this article.

And if you divide this by the number of shifts outstanding, then Shopify's, fair interest, value per share should be around thousand forty-seven dollars per share compared with its current market price of one thousand. Twenty and seven-point eight dollars per share as of April 16, 2020. This means Shopify share is currently around 15 overwhelm at the time making this article. So am I buying Shopify stock right now at the time of making this article?

I don't have any positions in supervised stock in my portfolio I did have Shopify stock before, but I sold it because I believe that the stock was overwhelmed right now. I am waiting for Shopify stock to drop much lower than its interest value before buying back my Shopify shares because I want to have a greater margin of safety if Shopify's cash flow can grow around 50 to 65 percent compound annual growth rate chi each year over The next five years, then, I believe, supervised fair interest value as a whole company is around 128 billion us dollars or around 1047 us dollars per share. All of these are only my opinions and my analysis. Based on my research, you will have to do your own research and do your own due diligence.

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