Fear of slowing bottom-line growth has been tough on Shopify's (SHOP -2.37%) stock price. Shares of the e-commerce solution provider have already lost more than half their value this year.
Most of Shopify's recent plunge happened in response to forward-looking guidance outlined during the fourth-quarter earnings call management held on Feb 16, 2022. In a nutshell, the company warned investors to expect heavier than expected investments into fulfillment services.
1. Increasing share
Shopify's share of e-commerce sales in the U.S. is second only to Amazon (AMZN -1.64%) and it's gaining on the leader. In 2021, Shopify's share of overall e-commerce sales grew more than twice as fast as Walmart's.
| Company | Share of U.S. E-Commerce Sales in 2020 | Share of U.S. E-Commerce Sales in 2021 | Gain (Loss) |
|---|---|---|---|
| Amazon | 41% | 39% | (2%) |
| Shopify | 8.6% | 10.3% | 1.7% |
| Walmart | 5.8% | 6.6% | 0.8% |
Data source: eMarketer and Shopify.
Shopify's building up its position as the go-to partner for just about any business that wants to compete with Amazon's enormous logistics network. It was this news of increasing investment into fulfillment services that caused Shopify's stock price to sink after its fourth-quarter earnings call.
Over the past year and a half, Shopify built out a self-operated warehouse in Atlanta as a pilot study and it worked. More visibility and control over fulfillment services that can handle two-day deliveries and returns was so well received Shopify will continue building and operating more of its own major warehouse hubs. Heavy investment in warehouse hubs has already started and is expected to exceed $1 billion by the end of 2024.
Image source: Getty Images.
While 2022 might not be a great year in terms of profit growth, improved fulfillment services will cement Shopify's lead position among merchants that want to do business in North America.
2. Going global
Geography has always been a problem for the world's merchants. Languages, currencies, and customs that differ from one country to the next can quickly stop small to medium-sized businesses from expanding beyond their home territory.
Shopify's international fulfillment service, Shopify Markets is in the middle of a big upgrade that will make it more attractive to merchants in North America and beyond. In 2021, Shopify expanded a partnership with international e-commerce solution provider, Global-e Online (GLBE -1.18%).
At the moment, a majority of the merchandise sold through Shopify comes from North American merchants, but this could change thanks to the Global-e partnership. Global-e Online doesn't just help North American businesses export their goods to a wider audience. Global-e is also useful to an increasing number of international merchants that can't afford to hire their own army of cross-border trade consultants.
3. Room to grow
The total value of goods sold on Shopify's platform or gross merchandise volume (GMV) has more than doubled over the past two years. As a result, merchant solution revenue exceeded $1 billion during the fourth quarter for the first time in the company's history. Investors will be glad to know this isn't anywhere near a peak.
Shopify estimated global e-commerce sales at $4.2 trillion in 2020, which was 26% more than the company measured in 2019. In the fourth quarter of 2021, GMV soared 31% year over year to $54.1 billion. That works out to less than 5% of the entire pie right now.
Despite falling a long way from their peak, Shopify shares still trade for around 18.1 times trailing revenue. This price still implies a great deal of growth which means the stock could dip and dive again if the road ahead gets rough. Investors who hang on to their Shopify stock for the long run, though, have a lot to look forward to. As Amazon normalizes ultra-fast shipping, building the only logistics network capable of competing will cement Shopify's position as an indispensable partner to the world's direct-to-consumer merchants.
