Written By But what is driving this sudden surge in Shopify’s stock, and what does it mean for the company’s future?
First, it’s worth taking a closer look at Shopify’s business model. The company provides an e-commerce platform that allows businesses of all sizes to set up and operate online stores. Merchants can use Shopify to design their stores, manage their inventory, process payments, and handle shipping and fulfillment. Shopify generates revenue by charging merchants a subscription fee and taking a percentage of each sale made through its platform.
The pandemic has been a boon for e-commerce companies like Shopify, as the shift to online shopping has accelerated. In 2020, Shopify’s revenue grew by 86% year-over-year, as more businesses turned to its platform to reach customers online. And the company’s stock has been on a tear in recent years, rising more than 4,000% since it went public in 2015.
But despite this impressive growth, some analysts have been skeptical about Shopify’s prospects. The company faces stiff competition from the likes of Amazon and other e-commerce giants, and its revenue growth has been slowing in recent quarters. In the fourth quarter of 2020, for example, Shopify’s revenue growth rate dropped to 94% year-over-year, down from 96% in the previous quarter.
That’s where the recent bullish endorsement from an analyst at Baird comes in. The analyst argued that Shopify’s slowing growth rate is “a mere speed bump,” and that the company has plenty of room to grow as more businesses shift to e-commerce. The analyst also praised Shopify’s expanding suite of services, such as its payment platform and its new fulfillment network, which could help the company capture a larger share of the e-commerce market.
The endorsement seems to have struck a chord with investors, who have piled into Shopify’s stock in recent days. But some analysts caution that the stock’s valuation may be getting ahead of itself. Shopify’s price-to-sales ratio, a common valuation metric for growth stocks, is currently around 55, compared to an average of around 10 for companies in the S&P 500 index. That means investors are willing to pay a premium for Shopify’s growth prospects, but also raises the risk of a sharp correction if those prospects don’t pan out.
Despite the risks, however, Shopify’s recent performance has been impressive, and the company’s expanding suite of services could help it stay ahead of the competition. Whether Shopify’s stock can continue its upward trajectory remains to be seen, but for now, investors seem to be betting that the company has a bright future ahead.
