Over the past two weeks, Cathie Wood's Ark ETFs have been dumping Shopify (SHOP 1.04%) stock, selling around $19 million of the stock
So, is there reason to be concerned with Ark's move away from Shopify, or is this just noise? Let's find out.
Getting out of logistics was the right move
Shopify has been undergoing a significant business transformation. Back in June, it spun off Shopify Logistics, which includes Six River Systems (its warehouse robotics company), various warehouses it had purchased, as well as its latest acquisition, Deliverr. These businesses were sold for a fraction of what Shopify paid, marking a huge loss for the company.
However, it also returned Shopify to its roots of providing e-commerce tools to businesses of all sizes on the software side. Although the spinoff was painful for investors, it is good sign management recognized they were in over their heads and folded their hand before it got worse. In fact, without the effects of the sale in Q2, Shopify would have posted an operating profit. This shows how much of a drag the logistics business has been on Shopify's finances, and the new start will be a welcome one to investors and management alike.
Shopify has quickly become more and more focused on its Shopify Payments product, as it is a significant revenue driver for the company. In Q2, gross payment volume rose 53% to $24.9 billion in the quarter, representing 58% of gross merchandise volume (the value of all transactions processed on its platform). This helped its merchant solution revenue rise to $1.3 billion, up 31% on a currency-neutral basis.
As Shopify works to get more clients on board with its Shop Pay system, it will continue to add meaningful growth to the company.
Overall, Shopify's revenue rose 31% in Q2, which shows Shopify continues to be one of the top growth stocks on the market. While Shopify posted a $1.6 billion operating loss, the sale of its logistics business incurred $1.7 billion in one-time expenses.
So, with Shopify looking like it will turn the corner soon, why are some of Cathie Wood's Ark ETFs dumping the stock?
The stock can be purchased at a solid price
After the moves, Ark funds as a whole still have a 3.2% portfolio weighting in Shopify, making it the firm's 9th largest holding as of this writing. The sales decreased its Shopify position from approximately $433 million to $414 million, a minor change relative to its total position.
However, these latest sales are part of a bigger trend of ongoing reductions to Ark's Shopify holdings. In early April, Shopify held nearly 13 million shares of Shopify, making up around 5% of the firm's total portfolio. At that price and weight, Ark funds held around $625 million in Shopify shares. The beginning of its Shopify selling was perfectly aligned with Shopify's Q1 results, when the company disclosed it was selling its logistics business. That announcement likely triggered Ark's selling, which has brought its ownership down to about 7.5 million shares.
So should you follow ARK's direction and begin to reduce your holdings? I don't think so.
Like many tech stocks, Shopify has had a strong year and is up over 60% in 2023. Still, the stock can be purchased at some of its lowest valuation levels seen in its eight years as a public company.
Data by YCharts.
While 11.5 times sales still isn't cheap, it's much more reasonable than the 20-plus times sales it traded at leading into 2020. While this isn't a go-all-in price point, it represents a fair price to pay for a company that is critical in the e-commerce infrastructure worldwide.
Additionally, it's pulled back around 20% from its recent highs alongside the broader market, so right now could be your opportunity to rewind the clock a couple of months and pick up shares of Shopify before they continue on their upward trajectory.
