Why did Shopify drop so much this week? Is Shopify “Hell of A Deal” now?

This morning, Shopify founder and CEO, Tobi Lutke, called Shopify’s stock price “Hell of a deal”. So is it time to add more Shopify as CEO Tobi suggested? 🤑🤑🤑

Let us look at the earnings report released this Wednesday and compare it with Shopify’s competitors.

I selected Amazon, Square, and Etsy because they all trying to help customers to build a successful eCommerce business.

Growth

  • 😀 Quarterly total revenue +41% (977.74M -> 1.38B)
  • Subscription Solutions +26% (351M)
  • Merchant Solutions + 47% (1029M)
  • 😟 Revenue growth guidance in 2022 won’t be as fast as 2021.

All eCommerce companies are facing headwinds from slow post-COVID online sales and high inflation. Overall Shopify did a good job this quarter regarding growth.

It could still maintain a high +40% revenue growth next year. However, slow-down revenue guidance is definitely a risk moving forward.

Profitability

  • 😖 Shopify’s quarterly operating Income -87% (112.54M -> 14.4M). Although Square and Etsy haven’t released Q4 earnings yet, Shopify’s decreasing rate could likely be the worst.
  • 😒 Shopify’s operating margin decreases to 1% from 12% one year ago.
  • Amazon would probably have the highest operating margin and lowest operating income decrease rate after Square and Etsy released Q4 result on Feb 24th.

Shopify’s profitability from the earnings probably is the main reason its stock price plunged more than 20% since Wednesday.

Valuation

  • Different from Amazon and Etsy, Shopify’s business model is more similar to Square and SaaS companies like Salesforce or Twilio.
  • Salesforce and Twilio’s P/S ratios are both around 10, which are also much less than Shopify’s.
  • Square’s revenue is “boosted” by its Bitcoin revenue. However, even without that, SQ’s P/S ratio would still be less than 10, which is much less than Shopify’s 19.4.

Shopify’s P/S ratio is too high considering its growth would slow down in 2022.

Conclusion.

Shopify’s slow-down revenue guidance and decreasing profitability might be the main reasons why its stock price -20% this week.

However, I think Shopify’s price is still too high compared to its competitors. Many high-growth SaaS companies are having a P/S ratio of 10 in this bearish market. Amazon or Square would be a better choice than Shopify.

In all, I don’t agree with CEO Tobi’s statement. $555.00 per share is more like “Hell of A deal” than $666.00 per share to me 😅.

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