Shopify (NYSE:SHOP) is undoubtedly one of the biggest winners of the pandemic. In the last five years, Shopify stock has generated returns of 5000% and shows no signs of slowing down.
As people live, work and play from home, online shopping has become more of a necessity than a choice. Shopify’s massive growth has been fueled by this e-commerce boom.
However, investors have cast their doubts on the durability of the stock in the long-term. A potential Covid-19 vaccine could dampen the company’s rally in the coming months. But with infections expected to rise in the winter, this could take a while.
I strongly believe that Shopify stock is worth your investment regardless of future developments. The pandemic will create a paradigm shift in the way people shop and Shopify will play a key role in this change.
Shopify Stock Is a Winner No Matter What
Shopify has played an important role in the pandemic, serving as a beacon of hope for small businesses. When lockdowns went into effect in early March, many businesses were forced to make the pivot to e-commerce.
Shopify’s platform helped makes this transition as seamless as possible. The company’s storefront allows users/merchants to create an online footprint of their brand. Sellers can ship the products directly to the consumer while offering additional fulfillment services.
Shopify earns its revenue by taking a merchant fee and percentage of every transaction on the platform. This resulted in massive revenue for the e-commerce giant and in Q3 the value was up an estimated 96% from 2019.
The surge can be attributed to a 48% rise in subscriptions and a 132% increase in merchant solutions. Earnings per share also rose by a whopping 140.6% from the previous year.
After Pfizer (NYSE:PFE) and Moderna (NASDAQ:MRNA) announced the 90% efficacy of its vaccine, shares of pandemic-friendly companies like Shopify fell. Many investors have since pondered the long-term implication of the investment. But it’s worth noting that a vaccine doesn’t necessarily mean that the pandemic is nearing its end.
Hospitalizations and case numbers in the U.S. continue to rise with predictions of a brutal Covid winter. Adding to this is the amount of time it will take for the approval and distribution of the vaccine.
Hence, it’s safe to say the pandemic-induced rally of e-commerce stocks is not ending any time soon. Moreover, the road to a pre-pandemic life in a post-Covid world will be a long one. The recent pullback in Shopify stock should not be a cause for concern. In my opinion, it’s a great investment (albeit a pricey one) for the long-haul.
Shopify’s Fulfillment Play
The holiday season also signals the start of the busiest time of the year for e-commerce platforms. More so this year, given that in-store shopping is a thing of the past.
In an effort to make the most of its e-commerce orders, Shopify developed a strong network of fulfillment centers. The goal of the centers is to make the logistics of shipping goods to customers as simple as possible.
Shopify also announced two-day shipping in the U.S. that will be deployed through these centers. This will the platform a direct competitor to Amazon (NASDAQ:AMZN) that offers a similar service.
The company’s new fulfillment centers are an excellent strategy for long-term growth. While traditionally serving a storefront for businesses online, the new feature will help Shopify sustain demand for merchants’ products in the long-term.
In addition to a more streamlined operation, two-day shipping will also incentivize businesses to build their brand on Shopify. Not only will this attract new customers to the platform but will also funnel in more revenue for the company.
A win-win situation for both parties. Shopify is integrated with Facebook (NASDAQ:FB) and TikTok to which will increase the reach of merchant’s products.
Shopify is not as big as Amazon but the new two-day shipping feature will certainly open lots of doors for the company.
The Bottom Line on Shopify
One can argue that Shopify stock is overvalued at its current price- trading at 45 times sales this year. However, it’s also worth considering its rapid growth since the onset of the pandemic.
With a number of exciting features in the works and a large target market, the potential for growth is undeniably vast. There are numerous opportunities that lie ahead and Shopify is poised for stratospheric gains in the future.
Don’t be deterred by the recent vaccine news pullback but use the dip as an opportunity to place your bets on high-flying Shopify stock.