Should You Invest in Shopify?

PHOTO CREDIT: Shopify

OVERVIEW

Shopify Incorporation is an e-commerce business. Small and medium-sized businesses can use Shopify to sell products on the company’s e-commerce platform. Consumers can buy products of Shopify websites. Shopify is essentially the middle man between these two parties as it handles the transactions that take place.

Why You Should?

  1. The COVID-19 Pandemic has greatly benefited the company’s sales of its subscription-based products. Small and medium businesses have had their storefronts closed due to the pandemic and government regulation. In order for them to stay afloat, they will need to find other ways to sell their products. Shopify is the best way to do this because merchants do not need to worry about the transaction process when selling online. Consumers also will shop on Shopify as they stay indoors and away from small and medium business storefronts.
  2. The company was growing well before this pandemic hit. Small and medium businesses wanted to sell both at their storefronts as well as have a digital footprint to get a wider reach for their products. Shopify is the best solution for these companies who aim to do this. This is why the company has seen good performance in the past and will continue to see good growth in the future.

3. The company has strong financials over the past couple of years. The company has seen rising revenues due to strong growth but has not turned a profit yet. The graph below shows the parabolic growths of revenue for the company but also shows increasing losses posted. In the financial year of 2019, the company reported revenues of 1.6 billion and a loss of 125 million. In the financial year of 2018, the company reported less revenue at around 1 .1 billion but a better loss at around 65 million.

PHOTO CREDIT: Yahoo Finance

Why You Should Not?

  1. Shopify will further benefit from having a strong economy. This is because small and medium businesses have the cash to spend on growing and consumers have the cash to spend on buying different non-essential products. Small and medium businesses are currently failing and have low cash reserves and consumers also have less cash to spend.

2. Shopify has strong competition from large companies that have recently entered the space of offering an e-commerce platform. Amazon has their third-party seller website and Facebook has its Instagram shops which offer similar experiences to that of Spotify. Other companies like Square also have similar products to those of Shopify. This might hurt the company’s future growth.

3. The stock is still very expensive. The company is currently trading near its 52-week highs and currently sells for near $1000. This makes the stock price of the company extremely volatile and would not be a very safe investment. I would wait for the stock price to fall steeply before investing in this company.

MY OPINION

In my opinion, I think that Shopify is a good long term investment because of its strong growth paired with strong financials. However, increasing competition and a high stock price might drive new investors away from this company.

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Aaditya Patel is a writer who publishes analysis on companies publicly traded on the NYSE. Follow him @the_investing787 on Instagram for summary posts.

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Aaditya Patel

Aaditya Patel

Aaditya Patel is a writer who publishes analysis on companies publicly traded on the NYSE. Follow him @the_investing787 on Instagram for summary posts.

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