Shopify Analysis
Chart done on daily timeframe. Shopify investors have been on a volatile ride over the past 12 months, with the stock at one point reaching a low of 45.50 and a high of 91.57. That big of a range can be frustrating for investors, but looking at their numbers, the reason behind their inconsistent movement could be because of their inconsistent earnings. Shopify’s quarterly and yearly earnings have jumped back and forth on both revenue and net income, leaving investors to question the solidity of their business. Despite the back and forth, the general trend of their revenue is up year over year, but the company needs to improve their profit margins and offer more consistent net income for investors to have more faith. Valued at 77B, they are considered a bit expensive, but if they keep revenue growth at the same rate as 2023 (33% YoY), then they can justify their price for investors.
The company’s balance sheet has a strong ratio of 5:2, and their free cash flow reserves have grown to over 1B in the last twelve months. So despite their net income being inconsistent, the company is still managing to grow its balance sheet and cash flow.
One of Shopify’s biggest competitors is Wix, so we can compare the two companies to see which offers a better value. Shopify has a total of about 4.6M active websites globally per, vs Wix with 10.8M active websites. Wix is obviously taking a bigger pie of the e-commerce industry, however when we compare the company’s valuations, we see Shopify is seven times more expensive than Wix. Shopify’s market cap as stated above is 77B, and Wix is 9.43B, significantly lower for a company that has more users. Shopify’s edge could be their ability to charge more fees, which has led them to more annual revenue than Wix. Shopify generated 7B in revenue in 2023, vs Wix at 1.56B, yes Wix brings in significantly lower revenue, but valuation wise, Shopify could still be considered expensive compared to competitors.
All in all, Shopify in the short term needs work and could be susceptible to a further correction if this year’s revenue doesn’t increase towards the 10B number. Their balance sheet, cash flow, and growth are impressive, but we can’t call this a “buy and forget” company at this valuation.