What happened
Shares of Shopify (SHOP 1.83%) are down some 8.5% compared to where they closed trading last Friday, according to data from S&P Global Market Intelligence, extending a slide that has gone on for more than a month now as investors transition away from early pandemic winners.
Despite Shopify still being considered a quality name on Wall Street, analysts are beginning to think the boom in online shopping that occurred during the pandemic will ease markedly, particularly as concerns grow about the health of the economy. A seasonal spurt in COVID-19 cases and its variants could lead to economic tightening globally.
So what
Shopify certainly has been on a tear. It took its merchants 15 years to achieve $200 billion in cumulative gross merchandise value (GMV), but just 16 months to double that to $400 billion. That white-hot pace is cooling, though revenue did grow 46% in the third quarter to $1.12 billion. GMV was also $42 billion for the period, up 35% from last year, but below analyst projections of $43.4 billion and representing a slowdown from the 40% growth achieved in the second quarter and well under the 114% increase seen in the first.
Shopify itself maintains growth will continue in a more normalized fashion, albeit at a slower pace than was set during 2020, although it doesn't provide specific guidance.
Goldman Sachs recently said Shopify is "well positioned for the long term," but the expected spending slowdown will likely raise its costs as it reinvests in its platform, including improving customer fulfillment.
Now what
It's not universally agreed this is a bad time to be a Shopify investor. Evercore ISI says the cloud-based e-commerce platform has become "dislocated" from its intrinsic value. Analyst Mark Mahaney argues Shopify is "one of the biggest structural winners" from the pandemic because so many businesses have transitioned to a digital business model.
Because Shopify is such a top-quality asset, he estimates it should grow at a compound annual growth rate of 34%. Wall Street overall projects Shopify will grow revenue from $2.9 billion last year to $16 billion by the middle of the decade, a 41% CAGR.
In light of the easing that even Shopify admits is occurring, its stock will undoubtedly see weakness, but investors might see that as an opportunity to by a best-in-class business at a discount.