With Logistics Business Offloaded, What’s Next For Shopify Stock?

Shopify stock (NYSE: SHOP) has fared very well this year, rising by about 80% since early January, and also remains up by about 2.5x from the lows seen in 2022. While tech and online commerce stocks have done well in general over 2023, a lot of other things have been going right for Shopify stock of late. The company’s Q1 2023 results were better than expected, with revenue rising almost 26% year-over-year with the company also reporting a surprise profit on a GAAP basis. More consequentially, Shopify said that it would exit the logistics business, which it began building out pre-Covid, selling its operations to global logistics player Flexport. The investments into logistics were not being viewed favorably by the markets, given the sizable cash outlays required and also due to the lower margins. There were always concerns as to whether the company would be truly successful with fulfillment, especially compared to e-commerce behemoth Amazon
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, which has a deeply entrenched logistics network. The divestment will enable Shopify to focus on more lucrative growth opportunities in its core areas of providing software tools and solutions for businesses that want to go online.

So, is Shopify stock a buy at current levels of about $63 per share? Even post the rally, Shopify valuation multiples do appear reasonable versus historical levels, with the stock trading at 12x projected 2023 revenues, down from a range of 20x to 40x seen between 2019 and 2021. Moreover, we believe that Shopify’s revenue growth is still likely to remain above the industry average. Shopify is also looking to better address its high-operating cost base, with plans to cut about 20% of its workforce. This is in addition to the company’s move to slash about 1,000 positions last year. With the company’s move to sell off its logistics arm, we could see overall margins and earnings trend higher in the long run. We value Shopify stock at about $70 per share, roughly 10% ahead of the current market price. See Shopify Valuation: Is SHOP Stock Expensive Or Cheap? for more details on Shopify’s valuation and Shopify Revenue for more details on the company’s revenue streams and how they are trending.

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