Shopify (SHOP 4.67%) has rapidly grown into a massive force in the e-commerce landscape, but its growth has mainly taken place during strong economies. In this Fool Live clip, recorded on Dec. 6, Fool.com contributors Matt Frankel, Toby Bordelon, and Danny Vena discuss whether Shopify would hold up well if a recession or other economic turbulence were to occur.
Matt Frankel: This is Shopify, which I know is one of Danny's favorite stocks.
Danny Vena: It is one of my favorite stocks. I ranked it middle of the pack myself even though it's one of the ones that I brought to the table. The reason for that is we have not had Shopify as a public company during a regular prolonged economic downturn. But I used Amazon (AMZN 3.31%) kind of as my guide. I know that Amazon is a company that people turned to during the last recession looking for bargains, like another company that we're going to talk about.
E-commerce has become such a part of everyday life that Shopify is out there, and they have essentially the operating system for merchants who want to go out there and sell their goods and services online. You don't have to have a degree in computer science. Shopify has a drag-and-drop system to help you create your website. It integrates with your payments; it integrates with shipping. They use your history as a merchant to be able to offer you working-capital loans.
Over the past couple of years, they have expanded into warehousing and cross-stocking, going further into Amazon's area of expertise. I was a little hesitant to rank this higher just because Shopify hasn't been around as a public company during a major recession. But that said, I think this is a company that will probably hold up better than the S&P 500 during a prolonged downturn. Really, what more could you ask for, then a stock that doesn't fall as much as the broader market when everything is falling?
Toby Bordelon: Yeah. I think I was between you guys on this one. I had it at five. This one is tough for me. Honestly it was. I struggle with it, because my issue was, I agree with everything you said, Danny. But when I look about, so what are the larger customers are consumer oriented, consumer focused. I just wonder what happens if we get like a big recession that lasts, and you start to see some of these smaller businesses who have been using the platform for their shops reducing customers.
Do they continue to rely on Shopify? Do they have to pull back a little bit? I wasn't quite sure what to do with that. Honestly, I wasn't quite sure whether I put them in the corporate business category or more of the consumer category in terms of their end-user, and so that's why I ended up sticking it in the middle. I might just not be sure exactly what'll happen. I think they hold up fairly well. They are a critical component of e-commerce for sure. But I think there might be a little risk and maybe that's some of the margins of some of their customers. Some of the marginal businesses that might fall and fail in recession if they can't get the revenue in the customer base to sustain them.
But I think they are so broad. They have so many customers. There's such a broad, diversified in terms of their customer relationships, that you've got to think there's going to be a decent amount of staying power there. E-commerce isn't going anywhere even in recession. It might reduce a little bit, but it's still going to exist. It's still going to be a thing.
