Shopify's (NYSE:Shop) Fourth quarter financials exceeded expectations. However, the e-commerce platform's stock price fell due to soft guidance, down about 17% from its 2024 peak.
Investors may be considering taking advantage of the recent selloff to add Shopify to their portfolio. But before that, there are four things you need to know about this top. e-commerce inventory.
Shopify services
Shopify gives anyone in 175 countries the tools to quickly set up an online storefront and start selling products. In addition to payment processing and checkout functions, the business also provides inventory management, shipping, marketing, and sales functions through various channels. Additionally, Shopify has a developer ecosystem and app store that sellers can use to suit their specific needs.
In 2023, Shopify handled $235.9 billion in gross merchandise value. This represents the total amount of transactions that occurred on the platform. This number increased by 20% compared to the previous year. Last year, merchant and subscription solutions brought him $7.1 billion in revenue.
Right-sizing operations
Shopify acquired Deliverr in 2022 for $2.1 billion. The strategic rationale was to become more similar. Amazon, provides millions of customers with a reliable distribution and logistics foundation to track everything related to shipping. Essentially, Shopify wanted to spend a lot of money on a huge capital investment and monetize it with long-term recurring fees based on the use of its delivery services.
But last year, management decided to change strategy and sell the entire fulfillment division. With this transaction, Shopify will acquire a larger stake in Flexport, and Flexport will become its logistics partner. This seems like the right move, as it allows Shopify to focus on what it does best: introducing innovative software and technology features that merchants find valuable.
Additionally, it frees up capital and helps your business become more profitable. Shopify generated net income of $132 million in 2023.Analyst estimates expect adjusted net income Earnings per share It is expected to rise at an annual rate of 35% over the next three years.
Sensitivity to macro forces
Meanwhile, Shopify posted significant growth riding on the long-term growth of online shopping. Helping a cause is Software as a Service (SaaS) and cloud-based platforms that can scale up quickly. In other words, this company resembles a true technology company.
But at the same time, we can't ignore the fact that Shopify has indeed shown itself to be sensitive to macroeconomic factors. Growth has slowed dramatically over the past few years, a period marked by rising interest rates, inflationary pressures and fears of a recession.
To its credit, Shopify is focused on attracting large scale sellers to its platform. However, this business still caters to small and medium-sized sellers and is highly influenced by economic conditions. When there is a possibility of a recession, these companies are more likely to go bankrupt. And this can have a direct negative impact on Shopify's financial performance.
high expectations
Without a doubt, Shopify has been one of the best performing stocks in recent times, albeit in a very volatile situation. The stock is currently trading 55% below its all-time high.
However, this is still a very expensive stock.Currently on sale at the following prices Price relative to sales (P/S) ratio is 13.9. This multiple is significantly higher than other companies in the e-commerce space. Amazon, mercadolibre, Etsyand eBay. Additionally, while Shopify's P/S ratio is well below its historical average of 22.6, this is still a high valuation even considering the business' growth potential.
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John Mackey, former CEO of Amazon subsidiary Whole Foods Market, is a member of the Motley Fool's board of directors. Neil Patel and his clients have no positions in any stocks mentioned. The Motley Fool has positions in and recommends Amazon, Etsy, MercadoLibre, and Shopify. The Motley Fool recommends his eBay and recommends the following options: His April 2024 $45 short call on eBay. The Motley Fool has a disclosure policy.
4 Facts You Should Know About Shopify Before Buying Stock Originally published by The Motley Fool
