Shopify (SHOP) $60 – Big 25% drop post earnings.
Shopify is still on the expensive side at 9x sales with 21% growth, and 63 x earnings with 35% growth. But it’s a lot cheaper after the drop.
What caused the drop, and does it change the long-term growth outlook?
- Both revenue and earnings beat in small amounts.
- Guidance was in line if you adjusted for the sale of the logistics business.
The drop was more valuation-related, which was high, and GAAP profitability has over the past year, become a sensitive issue with higher interest rates.
That said, the business is really, really solid – they’ve had two price increases (plus and premium tiers) with little churn from customers.
It does have Shopify has a significant competitive advantage in its dominant segment of SMBs – in that it is the leader in small-to-medium-sized digital storefront provision of independent sites of access. The quality emphasis does resonate with customers who remain loyal.
I think it is worth accumulating on declines for the longer term- the only caveats being – that multiples are getting compressed and with Shopify’s relative maturity there will be scrutiny towards GAAP profitability, especially since their hyper-growth days are over. All that means that returns will be more sedate, but at this price, the downside is limited, with more upside potential.
