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Shopify Crushed - The Narrative is Clear

Philippians Chapter 4 verses 6-7 state, "Do not be anxious about anything, but in every situation, by prayer and petition, with thanksgiving, present your requests to God. And the peace of God, which transcends all understanding, will guard your hearts and your minds in Christ Jesus."


I love God's word as it is applicable to any and every situation. This is the go-to verse when I'm dealing with difficulty. The reality is that God is BIG meaning bigger than any problem. So my problem is actually small. I need to accept that fact in order to understand what this verse actually means. The most amazing part is God's peace through adversity.


While this verse is very often associated with health concerns or issues and immediate hardships that arise, it is still very useful for any area, including making decisions on financial topics. The way I am attempting to apply this is to keep a focus on the broader issues, notably the potential for recession. I have ample Cash now, but I will continue to build this and remain patient as things may continue to get worse. This week's 3-day pop and today's extreme reversal is a direct example of how patience is the right approach at this time.


Topic

Shopify, Inc. (SHOP) is crushed today and e-commerce is doomed right? Wrong. There are a lot of details and variables at play, but e-commerce remains healthy and as I've written on before, companies like SHOP, Copuang, Inc. (CPNG), MercadoLibre, Inc. (MELI), Sea Ltd. (SE) are all going to win long-term and continue to outperform the juggernaut, Amazon, Inc. (AMZN).


Key Takeaways


The big elephant in the room right now is Wallstreet. I updated my financial model considering e-commerce trends as well as SHOP's direct guidance from Q4 2021. Upon doing so I got the following:

What baffles me is that average Wallstreet estimates for Revenue in 2022 stand at nearly $1 billion higher than this, and even $500 million higher from their low-point. I noticed it initially and though it odd. The same can be said for 2023 as I believe estimates remain too bullish, roughly $500 million higher than my estimate.


Like was the case with AMZN, SHOP is witnessing some very tough comps from 2021 and this will likely continue over the next quarter or two. At the same time, the market is simply wrong and investors need to recognize that markets are dictated by people, who are dictated by emotions. 2020 was an extreme overvaluation point, and the opposite has occurred right now as the market has no clue as to what is going on economically, politically, and globally.


E-commerce is doing just fine and a AMZN witnessed a less than 1% increase in GMS, SHOP's 16% growth was solid. Once we get through these tough comps and growth begins to accelerate, a similar correlation follow as AMZN will inevitably return to high single-digit, low teen growth and SHOP will again jump to the 20-30% growth level.


The other item of note was the confirmation that SHOP has acquired Deliverr. I like this deal, and believe that it is a great example of a prudent bolt-on that doesn't raise any red flags with respect to Goodwill or Net Cash, and will likely add to accelerating growth over the mid-term.


Why it Matters


It's important for investors to recognize two things. First, human emotion tends to inflate and under-represent things. It's either "the best thing ever" or "the sky is falling". There rarely is any in-between. Second, e-commerce trends remain healthy and the pandemic's distortion of reality (on nearly every front) continues to see the dust settle.


For me, SHOP's results are simply confirmation of this. Growth is never perfectly linear, and today's macro environment is signally a potential recession on the horizon. The key for investors is to continue diligently watching the core metrics that will catalyze investment returns over time.

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