1 Beaten-Down E-Commerce Stock Trading at a Massive Discount

Shopify (SHOP 1.12%) has become a leading, back office platform for e-commerce, with customers ranging from entrepreneurs to large enterprises. In this clip from "3 Minute Stocks Updates" on Motley Fool Live, recorded on May 25, Motley Fool contributors Brian Withers and Toby Bordelon discuss Shopify's merchant-first approach and the innovative features it has in the pipeline.

Brian Withers: Shopify, ticker symbol S-H-O-P. The market has soured on Shopify for sure. The stock is down over 80% for rents high. If you look even over the past three years, 15% gain in three years, despite the fact it's tripled its annual revenue over that same time frame. I think the stock has sold off more than it should have, and let me explain why. Let me jump to my slides here. First of all, what does Shopify do? It's the back office for e-commerce websites. You can see their payments, capital, marketing analytics, etc., and managing your inventory. So if you want to set up an e-commerce website, Shopify makes it super easy to do that. Not only do they focus on entrepreneurs, it's that big black circle with lower tier subscription plans, small and medium businesses, their sweet spot in the $79 to $299 per month subscription plans. They also even serve large brands with their Shopify Plus platform at more than $2,000 a month for the base subscription. Why is that important that it serves the low-end entrepreneur all the way up to the big, large enterprise? There's more than one of these companies that have come public, that has been on the Shopify platform and Figs (FIGS -1.17%) is one of those. You look it started on Shopify's platform back in 2013, and over the next eight years, it's continued to add features as it's gone along, and has even more dependency on the Shopify platform today than it did when it started. Some tailwinds I see are, there's more and more people shopping at Shopify stores. You look at this number in 2021: 597 million consumers made a purchase on one of the million plus Shopify stores that are out there, and that's a 31% gain. Look at this over time. It's just e-commerce has become really a way of life for us. It's Shopify that is benefiting. You also see their subscription plans. I showed you that three levels of subscription plans there, that continues to grow. Although you can see in the last few quarters it's tailed off a little bit, but it's growing considerably. The other thing to note is those subscription plans which I just showed you is just as black bar down on the bottom. They also have Merchant Solutions, which as the Shopify stores sell things, these are tag-on services such as payments, fulfillment, credit, things like that, shipping, and that grew even faster than the subscription services business, which says that the merchants on the platform are doing well and thriving. The other thing that's really cool that Shopify has done over time is continued a merchant-first focus with their product innovation. You can see the number of innovations over time. This just helps them become even more sticky. As you have secular tailwinds of e-commerce growth, you add in the fact that, when they bring in more merchants, they can develop more features and supplies that merchants need, and those merchants get more GMV, which is more sales, which leads to more merchant. So the Shopify flywheel and the thesis is really still intact.

Toby Bordelon: All right, Brian. Let me ask you a little bit about growth. There has been some concern with slowing growth with Shopify recently. Here is a question for you. Should maybe they spark more growth by moving into first party consumer-facing brands in retail? Or can they stick with what they're doing now and still continue to win big?

Withers: Yeah, it's a good question Toby. I think investors were a bit surprised that Shopify has got into the fulfillment business as much as they have. Would they take it even one step further and do an Amazon (AMZN 0.25%) and get into the businesses that their customers are in? Now, I really don't think this is what they are at all. They've always been merchant-first, and you can see that with their recent $2.1 billion purchase of Deliver, which will enable merchants to have more visibility to their inventory throughout the entire supply chain. I love this merchant-first approach, and it's actually why I own Shopify and not Amazon.