Shopify: Not Cheap Yet But I'm Slowly Adding

Shopify: Not Cheap Yet But I’m Slowly Adding

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Shopify released its earnings and the stock dropped, adding to the big drops of the last months. It’s now down 61% from its highs.

We look at the nuts and bolts of the Q4 2021 earnings. Some called the guidance the reason for the drop, but I don’t think this is true.

The issue may be profitability, as Shopify will invest in several initiatives, especially its fulfillment network.

Shopify has rolled out an impressive number of partnerships and new initiatives.

The valuation shows that Shopify is not really cheap yet, but there are still reasons to scale in slowly.

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Bennett Raglin/Getty Images Entertainment Introduction

Shopify ( SHOP ) was the very first Potential Multibaggers pick on May 2, 2017, at $77.86. It was a 20-bagger just a few months ago and it’s still a 7-bagger now. Data by YCharts But, as you have probably noticed, the stock has been hammered. It lost 68% of its market cap in just a few months, since November 2021. Data by YCharts At the same time, even at this point, the stock is still up 189% over a three-year period, which I always think is the shortest time horizon in which you can say that you are investing for the long term. Data by YCharts In other words, your $10K would have still grown to $28,900 or a CAGR (compound annual growth rate) of almost 42.5%. That is still very impressive.

But the question then is, of course, if this crash is warranted and the company didn’t perform well, if this is a buying opportunity, or a bit of both.

So we’ll go over the Q4 2021 earnings first, and then look at the valuation. The Q4 and FY 2021 results

Let’s first look at the Q4 2021 numbers. Revenue came in at $1.38B, up 41.1% YoY and beating the expectations by $40M or 2.9%. EPS came in at $1.37, beating the estimates by $0.06.

GMV was up 31%, buyers were up 31% to 600 million, revenue up 41%, as I said. These were great numbers, and the initial market reaction, sending the stock higher, made sense.

But then came the earnings call. And Shopify did the unthinkable. It said that in 2022, there would be lower growth than in 2021. Boom. The stock dropped like a rock. Seriously? I mean, everybody and their little sister knew there was no way that Shopify would grow 57% in 2022. But that is the story that you hear everywhere. As if analysts didn’t know. This is the forward consensus for the next three years. Shopify’s revenue growth projections (Seeking Alpha Premium) Shopify doesn’t provide precise guidance (no numbers) but it gives some general ideas. ‘Slower than in 2021’ was only stating the obvious.

But what could be going on is that the market is, as usual, very impatient. The first quarter of the year will see slower growth, accelerating in the second half. I don’t know if that would mean missing the consensus or not, but it could. There are three good reasons for this. From the earnings press release : For 2022, we expect year-over-year revenue growth to be lower in the first quarter of 2022 and highest in the fourth quarter of 2022 due to three factors. First, we do not expect the COVID-triggered acceleration of ecommerce in the first half of 2021 from lockdowns and government stimulus to repeat in the first half of 2022. Second, our new terms with apps and theme developers cause two differences from last year’s first quarter: the elimination of Shopify’s rev share on partners’ first million dollars of revenue annually reset on January 1st, and the shift from gross to net revenue recognition for the sale of themes as a result of revised contract terms with our theme partners. Since these terms didn’t come into play until the second half of last year, these will be a headwind to Subscriptions Solutions revenue in the first half of 2022, particularly in the first quarter. And third, we expect certain commercial initiatives and sales and marketing investments will gain momentum over the course of 2022. Just some context for number 2. Shopify wavered all revenue-sharing on its own app store for the first $1M app developers make on Shopify. That, of course, creates monetary headwinds, but I think it’s a great long-term strategy.

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source Shopify: Not Cheap Yet But I’m Slowly Adding

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