Could equities experience a further bear market this year? That seems unlikely. Downturns last a bit less than 10 months, on average, so there is a good chance stocks will bounce back in 2023 -- and they have even started to do so.
Right now, it's a good idea to look for companies that did not escape last year's bloodbath but have a chance to rebound in 2023 -- and deliver market-beating returns over the long run.
One tech company that fits the bill is e-commerce specialist Shopify (SHOP 4.90%). Let's consider why the next 12 months and beyond could be much better for the tech giant than last year was.
Why Shopify could stop the bleeding
Last year, Shopify's revenue growth rates declined while the company's operating and net losses worsened compared to the early days of the pandemic.
SHOP Revenue (Quarterly YoY Growth) data by YCharts
Fixing those problems could help Shopify turn the page. Let's consider how the company can get there. Shopify faced challenging year-over-year comparisons in 2022 since its business experienced a pandemic-related boom in the two years prior. Once it is up against the much less impressive results it recorded in 2022, things should improve on this front.
There are also the e-commerce specialist's newly announced price changes. For instance, the company's basic monthly plan will now be $39, up from $29. In an environment with high inflation, it's not surprising to see the company take such initiatives. It has barely changed its prices in 12 years. This development should help boost the company's top line.
Could Shopify lessen its losses? That's a bit less clear although it still seems somewhat plausible. Shopify assumed the pandemic boom would be permanent and invested money accordingly. But that didn't happen. The company has been "recalibrating" it's spending to account for the slower-than-expected growth.
Among other measures, Shopify announced it would cut about 10% of its workforce in July. It's also worth noting that much of Shopify's red ink had to do with unrealized net losses -- primarily related to equity investments in e-commerce company Global-E Online and buy now, pay later specialist Affirm.
Here's one last factor to consider. In July, Shopify completed its acquisition of Deliverr, a fulfillment technology specialist, for $2.1 billion in a mix of cash and stock. The goal of this transaction is to help do something Shopify has been working toward for a while: build a fulfillment network that will provide small merchants with fast and reliable delivery options.
The addition of Deliverr increased the company's operating expenses. But the company's Shopify Fulfillment Network (SFN), which it is still building, will arguably be worth it in the long run. As the company's president, Harley Finkelstein, said on the Q3 earnings call, "When done right, fast and reliable fulfillment can significantly increase cart size, conversion rate, order value and turn buyers into repeat customers." The potential of Shopify's SFN, coupled with more disciplined spending and the end of the bear market (hopefully), would work wonders for Shopify's performance this year.
Shopify's long-term opportunities
Although Shopify could bounce back this year, investors should be more concerned with the company's long-term prospects. And in this department, there is much to be excited about. Let's consider two reasons why: Shopify's ecosystem of complementary services that make it invaluable to its merchants, and the future of the e-commerce industry.
Shopify's solutions include payment processing that allows merchants to integrate their online and brick-and-mortar operations, do business across various online platforms such as Facebook and Instagram, offer inventory management solutions and payroll, and much more. The company's goal is to allow merchants to focus on running their businesses as efficiently as possible.
The company isn't done adding more services to its ecosystem. Its aforementioned SFN, which it will continue to ramp up, should provide another tool to help merchants on the platform attract more customers and generate higher revenue and profits. This will work wonders for Shopify's gross merchandise volume -- the total value of transactions conducted on its platform -- and, by extension, the company's revenue.
Shopify's services and the key part they play in its merchants' ability to run their day-to-day operations grant the company high switching costs, ensuring that it will keep most of its clients. Meanwhile, e-commerce sales accounted for only 14.1% of total retail sales in the third quarter. According to some estimates, the sector will expand at a compound annual growth rate of 14.7% through 2027.
In All, Shopify should benefit from this unstoppable long-term trend thanks to its already solid position in the sector (it held a 10.3% share of the U.S. e-commerce retail market in 2021), its competitive edge, and its growing suite of valuable services for online merchants. That's why investors should stick with Shopify regardless of what happens this year.
