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Shopify: A Beaten-Down Tech Stock With Massive Upside Potential

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Shopify (NYSE: SHOP) is a Canada-based e-commerce giant that provides merchants the tools to start and manage their online businesses. It is an end-to-end service provider, and once onboarded, a merchant can do everything from managing products and inventory, accepting payments, processing orders, filling orders, and shipping orders. 

Over two million merchants use Shopify’s platform. While Shopify stock thrived amid the ongoing pandemic, it has lost over 77% in market value since touching record highs in November 2021. 

However, Shopify has an excellent business model and has also played an essential role in shaping the long-term prospects of the e-commerce segment. SHOP stock will likely bounce back once again as inflation loses steam and the upcoming recession abates.

 

Shopify is part of a rapidly expanding addressable market


The pandemic accelerated demand for the e-commerce sector, but online shopping still has a lot more potential. According to an IMARC forecast, the global e-commerce market might increase at a CAGR of 27.4 % between 2022 and 2027, growing from $13 trillion in 2021 to a massive $55.6 trillion by 2027 allowing Shopify to likely to thrive in this market. 

In the last few years, Shopify has played a pivotal role in the evolution of the e-commerce industry. Numerous manufacturers have benefited from the company's software-as-a-service (SaaS)-based platform. 

Shopify’s platform services around 1.75 million US merchants in total, which equates to over 10% of online sales in the United States. Therefore, more merchants will swarm to its portal as new opportunities materialize, and the company concentrates further on expanding its fulfillment ecosystem by providing a two-day shipping capacity to 90% of the US population. 

 

Shopify’s weak financials in Q2


Shopify’s financial health has been impacted because of the hindrances it has been facing since the beginning of this year. Its sales had slowed down largely in Q1 of 2022 to $1.2 billion, an increase of 22% year-over-year. Comparatively, sales in 2020 rose 86% year-over-year. In Q2, sales growth decelerated further to 16%. 

Alternatively, Shopify’s business is much bigger now, and its first quarter’s revenue is comparable with its 2019 revenue levels of $1.6 billion.

 

Great business strategies


Recently, Shopify has been trying to reshape its operations to gain traction in international markets. For instance, the company reached an agreement with the China-based organization JD.com to make it easy for its merchants in the USA to sell in China. 

Further, it also acquired Deliverr, a fulfillment technology provider, in order to help the merchants on its platform to scale up their businesses through their logistics platform. Notably, this acquisition was said to more than double the size of Shopify's fulfillment team.

The deal with JD.com will likely provide the company with merchants who are actively engaged in exports, while the acquisition of Deliverr would make the logistics operations much better for the merchants in general.

Shopify is a top business, but currently, its operations have been badly hurt. The recent changes made by the company in its operations might pay off, allowing Shopify to enhance its merchant reach. SHOP stock is currently trading at $38, and the average target price is $79, which is a potential upside of over 100%.



Disclaimer: The writer is an experienced financial consultant who writes for Finscreener.org. The observations he makes are his own and are not intended as investment or trading advice.

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