Shopify Stock: Does SHOP Growth Reflect Reality?
In May, Shopify (SHOP ) held one of the more anticipated IPOs of 2015. It has also been in the news as the company powering Facebook s (FB ) Buy button. One month later and currently trading above $35, Shopify stock has more than doubled since its $17 IPO offering.
In the run-up to the IPO and post-filing hype, the Ottawa-based e-commerce platform provider garnered significant media attention and has even been called the next big Canadian tech success story a possible successor to BlackBerry (BBRY ) and Nortel .
However, many people don t even know what the company actually does. Is Shopify on track to become a high tech superstar, or is the buzz misplaced?
Here s what you need to know about the hype surrounding Shopify stock.
What Does Shopify Do?
As the name would suggest, Shopify is an e-commerce platform. The company provides solutions for retailers to quickly set up a robust and scalable online store, complete with capabilities such as inventory and product management, payment processing, discounts, customer tracking and analytics.
Shopify also offers point-of-sale solutions for traditional brick-and-mortar stores and even offers its own mobile app and credit card reader a la Square for payment using an iPhone or iPad.
Third-party developers are able to sell supporting apps and store themes through Shopify s thriving platform app stores, providing customers with even greater customization.
Companies using Shopify range from small shops up to enterprise level customers like Tesla (TSLA ), Google (GOOG ,GOOGL ) and, of course, Facebook.
There are dozens of small companies offering online storefront and shopping cart solutions. Most of these are relatively simple tools geared for mom-and-pop operations with a simple website selling a few products. Others like Bigcommerce and Volusion are far more complex and compete directly with Shopfy as an enterprise grade complete e-commerce solution.
Then there are the big guns in the tech industry who offer online shopping solutions as part of their product portfolio. Amazon (AMZN ) has its Amazon Webstore service and Yahoo (YHOO ) has Yahoo Stores, to name a few.
Amazon is apparently shutting down its Amazon Webstore platform in 2016. but competition remains the biggest challenge and future risk for Shopify. If you want more detail about exactly who Shopify targets as its key competitors, the company has singled out 20 or so competing solutions for a comparison on its website.
Online retail is growing at a rapid pace. In the U.S. online sales hit $307 billion in 2014. They re expected to reach $349 billion in 2015 and $399 billion next year. Much of that growth comes through online retail giants like Amazon, but as more traditional stores move to offering online web stores, Shopify and its competitors will be vying to provide their e-commerce platform.
If SHOP can learn to maintain (or even grow) its market share, it could mean huge opportunities for Shopify stock.
Shopify Stock: The Numbers
Shopify currently claims to have over 165,000 customers in 150 countries. more than 600 employees and cumulative transactions of $8 billion.
Shopify revenues are based on a subscription fee collected from merchants using its platform (currently $29 to $179 monthly) and a transaction fee (2% or more depending on the service use) to process payments. In 2014, $3.8 billion of transactions using Shopify generated $105 million in revenue and resulted in a $22.3 million loss on the year.
Revenue shows impressive growth from 2013 more than doubling from $50.3 million but the numbers are still relatively modest.
Should You Invest in Shopify Stock?
Finally, the big question. Do you buy in to Shopify stock early in the hope that it continues to rise, or wait in the hope that expectations cool the price?
Many investors clearly think so, because Shopify stock is hot. It s up 38% since hitting the secondary market (where most investors can buy it). And for lucky institutional investors who picked it up at the $17 IPO price, SHOP stock has more than doubled in less than a month.
On the more cautious side are analysts like the Globe and Mail s Barrie McKenna who says :
For now, Shopify is just another fast-growing, money-losing tech company with a promising business model and a familiar-sounding name.
At more than $35, SHOP stock may be more than double the price of its IPO, but it s still relatively inexpensive compared to other tech investments.
The company has a long way to go before it reaches the heights achieved by Canadian tech giants like BlackBerry and Nortel. The big unknown is competition, and the more time Shopify spends in the spotlight, the more likely it is that someone else is going to come gunning for its customers.
But with little in the way of debt, plus a growing customer base generating strong revenue gains, A-list clients and a rapidly expanding market, the potential is there for Shopify stock to climb to lofty heights.
As of this writing, Brad Moon did not hold a position in any of the aforementioned securities.