{"id":32490,"date":"2023-07-07T02:49:39","date_gmt":"2023-07-07T06:49:39","guid":{"rendered":"https:\/\/ifintechworld.com\/news\/shopify-living-on-past-glory-nyseshop\/"},"modified":"2023-07-07T02:49:41","modified_gmt":"2023-07-07T06:49:41","slug":"shopify-living-on-past-glory-nyseshop","status":"publish","type":"post","link":"https:\/\/ifintechworld.com\/?p=32490","title":{"rendered":"Shopify: Living On Past Glory (NYSE:SHOP)"},"content":{"rendered":"
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Shopify’s (NYSE:SHOP<\/span>) stock has moved higher in recent months on the back of stable growth and the abandonment of its capital-intensive logistics initiative. The company also recently announced a 20% headcount reduction, which will help to control operating expenses. While the logistics rollout was a near term drag on cash flows, Shopify’s long-term potential is probably capped without it. The current share price does not reflect Shopify’s lower growth future or the fact that growth is being driven by inferior businesses. Shopify still has a number of value levers it can pull (additional products, pricing, financial leverage) but the risk-return ratio of the stock is far less favorable than it has been in the past.<\/span><\/p>\n

Market<\/h2>\n

Shopify has had a difficult 18 months, but most of this can be attributed to a post-pandemic hangover combined with the impact of Apple’s (<\/span>AAPL) ATT initiative. Within ecommerce, Shopify continues to gain share and believes that its market share in the US is in <\/span>excess of 10%.<\/span><\/p>\n

Most of the temporary headwinds negatively impacting Shopify are now likely largely over, meaning that the company’s current performance is reflective of what investors should expect going forward. Shopify is lapping easier comparable periods and the adtech ecosystem appears to be adapting to a privacy focused internet.<\/p>\n

Meta (META) is illustrative of how companies are adjusting to the changes brought about by ATT. Meta initially estimated that ATT could reduce its revenue by 10 billion USD in 2022, and if anything, this estimate may have ended up being low. Studies suggest that a majority of iPhone users have opted-out of IDFA, negatively impacting both targeting and attribution for advertisers. As a result, the sales of SMBs and in turn Shopify have also been reduced.<\/p>\n

There is evidence that Meta’s advertising efficacy is beginning to recover though on the back of large investments in machine learning. For example, Meta highlighted rapidly improving ad monetization efficiency in the first quarter of 2023. With targeting and attribution apparently recovering, any headwinds to Shopify’s business should now largely be gone. The extent to which Shopify’s recent performance has been dictated by macro factors can readily be seen from its revenue growth and share price.<\/p>\n

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Figure 1: Shopify and Meta Revenue Growth (source: Created by author using data from company reports)<\/p>\n<\/figcaption><\/figure>\n

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Figure 2: Shopify and Meta Stock Performance (source: Seeking Alpha)<\/p>\n<\/figcaption><\/figure>\n<\/p>\n

Shopify<\/h2>\n

After the abandonment of Shopify Fulfilment Network, Shopify now has 3 focus areas:<\/p>\n