• Tue. Nov 29th, 2022

Is the market overreacting to Shopify Stock?

BySamuel M. Craig

Sep 27, 2022
  • Equities may have been overly penalized by the markets
  • Shopify continues to grow, but at a slower pace
  • Shopify says 2022 is the ‘transition to a normal year’

The stock of e-commerce infrastructure platform Shopify (NYSE:SHOP) has fallen from a high of $176.29 to a recent low of $27.65 in less than a year. Stocks are down a tear (-79%) in 2022. The pandemic has accelerated e-commerce adoption by a decade by some estimates. Shopify operates in more than 175 countries as an international e-commerce platform like Amazon (NASDAQ: AMZN) but closer to eBay (NASDAQ: EBAY) and Etsy (NASDAQ: ETSY) consisting mostly of small businesses. This snapshot Shopify shares on the moon. Shopify enables businesses to create professional-looking online storefronts with design, hosting, marketing, shipping, payment processing, and customer engagement tools all in one place. It also offers buy-it-now and pay-later options through its Shop Pay feature powered by Affirm (NASDAQ: AFRM). Unfortunately the good times can’t last at this super accelerated pace and of course the reopening has slowed growth and its share price has followed. High inflation and rising interest rates are holding back consumer discretionary spending. This is especially problematic for Shopify since most of their merchants are small businesses paying a monthly subscription to access the platform. These small businesses lack the capital to withstand a prolonged recession. As Shopify becomes an integral part of a small business, the business must maintain revenue to pay these fees. Growth slowed and profits turned into losses. The company said 2022 will be a unique transition year where e-commerce resumes its pre-COVID growth trajectory. The big question is whether the markets have overreacted with Shopify’s stock, as it often tends to outrun highs and lows.

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Shopify benefits for merchants

Although there are many e-commerce and website building platforms on the market, Shopify has managed to bring all the tools together in an easy-to-use, one-stop-shop platform accessible via cloud, web or the cellphone. For merchants, differentiation is important. They offer omnichannel storefront capabilities to sell on web and mobile storefronts, social media, physical locations, and marketplaces. They allow business owners to manage their inventory, market and sell their products, and grow their brands while Shopify handles payments and shipping. Its merchant network also allows businesses to gain more traffic and looks. It provides solid data for merchants to analyze and make better decisions. The platform enables businesses to offer their customers a complete, end-to-end managed shopping experience at scale and at a very reasonable price. The company has renewed its exclusive partnership with Affirm to allow Shopify merchants to offer a buy-it-now, pay-later option offered through Shop Pay. Since June 21, 2021, Shop Pay installments powered by Affirm have enabled over 100,000 Shopify merchants to offer a shopping solution over time. Qualified Shopify merchants can add Affirm’s Adaptive Checkout to offer optimized payment options that can range from interest-free bi-monthly payments to simple interest-bearing monthly payments seamlessly for customers.

Is the market overreacting to Shopify Stock?

Shopify Stock Here’s what the charts say

Using the Rifle Charts over a weekly and daily time frame provides an accurate view of the landscape for the SHOP stock. Weekly Rifles Chart Breakout Attempt Reversed at $45.27 Fibonacci level (fib). The weekly Rifle chart has formed another breakdown as the 5-period moving average (MA) at $31.57 falls through the 15-period MA at $34.28 towards the weekly lower Bollinger Bands at 25.89 $. The weekly weak market structure (MSL) buy triggers on a break through $38.79. The daily Rifle chart also broke down in a similar fashion, with the 5-period MA falling to $20.35, followed by resistance at the 15-period MA at $31.77. The daily BB lower sits at $27.21. The daily Stochastic is swinging lower as it nears the oversold 20 band. Attractive pullback levels lie at $27.54, $25.53 fib, $23.28 fib, $22.46. $20.08 fib, $18.97 fib and the $17.46 fib level.

Slowing Shopify inventory growth

Shopify released its second quarter 2022 results for the quarter ended June 2022 on July 27, 2022. The company reported an earnings per share (EPS) loss of (-$0.03) compared to analyst consensus estimates for a profit of $0.03, missing by (-$0.06). Revenue rose 15.7% year-over-year (YoY) to $1.3 billion, missing analyst consensus estimates of $1.33 billion. Gross merchandise volume (GMV) increased 11% year-on-year to $46.9 billion. Merchant services revenue increased 18% year-on-year to $928.6 million.

Comments from the President and CFO

Shopify President Harvey Finkelstein said, “Our incredible pace of innovation was showcased over the past quarter with Shopify Editions, a summary of over 100 new features spanning B2B, POS Pro, Shopify Audiences, and Shopify. Markets, all designed to unlock even more value across our platform and strengthen Shopify’s commerce operating system. in the face of a challenging macroeconomic environment and highlighting the breadth and resilience of our business model”