Shopify stock analysis #shorts
- 6 months ago
For more detailed analysis visit our website: https://www.overlookedalpha.com
Shopify was one of the biggest winners of the pandemic. But the stock has lost 80% of its value taking the market cap down to 40.5 billion.
With 4.9 billion dollars of cash and 913 million in debt, the company now has an enterprise value of 36.4 billion.
Over the last 12 months, the company has made 5.3 billion dollars in revenue meaning the company is valued at around 6.9 times revenue.
However, the company is losing money. A 45% increase in operating expenses means operating income should come in at around -570 million for 2022. Including stock based compensation and other expenses, net income was negative 3.2 billion over the last 12 months.
According to management, higher interest rates and inflation mean that gross profit growth will meaningfully trail revenue growth in the rest of 2022.
And attempts by Amazon to lure customers away from Shopify with their ‘buy with prime’ offer is another tailwind.
But while profits are elusive, plenty of other metrics are moving in the right direction.
Revenue continues to show decent growth, particularly in merchant solutions.
Merchant solutions enables payment and shipping for sellers and now makes up 72% of the company’s revenue. Take rates for this segment have also been trending higher hitting 2.1% in the third quarter.
Also, Shopify’s investment in Deliverr means many sellers can now offer 2-day delivery.
Amazon is intimidating competition but Shopify will continue to be a popular alternative and Shopify as a service continues to trend on Google and social media.
But, lack of profits are a big issue for investors especially against a market cap of 40 billion.
If we assume that Shopify can grow revenues 20% a year for 10 years then operate with a 12% ebitda margin, ebitda would be roughly 4 billion in 10 years time. A 25 times multiple gets enterprise value to 100 billion for an investment return of around 10.6% per year.
That’s not a great return for what is a highly optimistic forecast.
Shopify will continue to thrive in its niche. But its stock isn’t cheap enough to buy.
That's why I give the stock a neutral rating. But these are my own opinions, not financial advice. For more detailed analysis visit our website.
Shopify was one of the biggest winners of the pandemic. But the stock has lost 80% of its value taking the market cap down to 40.5 billion.
With 4.9 billion dollars of cash and 913 million in debt, the company now has an enterprise value of 36.4 billion.
Over the last 12 months, the company has made 5.3 billion dollars in revenue meaning the company is valued at around 6.9 times revenue.
However, the company is losing money. A 45% increase in operating expenses means operating income should come in at around -570 million for 2022. Including stock based compensation and other expenses, net income was negative 3.2 billion over the last 12 months.
According to management, higher interest rates and inflation mean that gross profit growth will meaningfully trail revenue growth in the rest of 2022.
And attempts by Amazon to lure customers away from Shopify with their ‘buy with prime’ offer is another tailwind.
But while profits are elusive, plenty of other metrics are moving in the right direction.
Revenue continues to show decent growth, particularly in merchant solutions.
Merchant solutions enables payment and shipping for sellers and now makes up 72% of the company’s revenue. Take rates for this segment have also been trending higher hitting 2.1% in the third quarter.
Also, Shopify’s investment in Deliverr means many sellers can now offer 2-day delivery.
Amazon is intimidating competition but Shopify will continue to be a popular alternative and Shopify as a service continues to trend on Google and social media.
But, lack of profits are a big issue for investors especially against a market cap of 40 billion.
If we assume that Shopify can grow revenues 20% a year for 10 years then operate with a 12% ebitda margin, ebitda would be roughly 4 billion in 10 years time. A 25 times multiple gets enterprise value to 100 billion for an investment return of around 10.6% per year.
That’s not a great return for what is a highly optimistic forecast.
Shopify will continue to thrive in its niche. But its stock isn’t cheap enough to buy.
That's why I give the stock a neutral rating. But these are my own opinions, not financial advice. For more detailed analysis visit our website.