To say it’s been quite the run for Shopify (TSX:SHOP) stock would be an understatement. Shares have been steadily marching higher for several months now, even before the latest earnings result caused a spike of around 36%. Though Shopify stock is now down more than 8% off its 52-week high of around $86, I still view Tobi Lütke’s e-commerce company as a must-watch for Canadians who seek incredible growth over the next 10 years.
Shopify faces a critical test following the bearish bust of 2022. The company needs to prove it can adapt and overcome difficult economic conditions. The company just doesn’t have the same pandemic tailwinds at its back anymore. As recession headwinds look to get worse, though, I think Shopify has an opportunity to invest in itself in a way to bring in more market share across the crowded e-commerce arena.
Tech companies adapt to the tougher era
Tech companies across the board have laid off a lot of folks in recent quarters. This doesn’t mean innovation (and growth) is about to end for good, though. For companies like Shopify, I view the 2022 fall as a necessary, albeit painful reset to the valuation.
Shopify stock’s new valuation makes a lot more sense. At around 13 times price to sales (that’s not too bad for a proven innovator in a massive market), Shopify stock looks fairly valued assuming the company can land on its feet once the Canadian recession sweeps through the economy.
Even as merchants and vendors feel the pinch, Shopify may find a way back on the growth track far sooner than expected. How? Shopify appears to be going after offline commerce while it continues to make strides in the digital arena.
Shopify stock: Could offline commerce help propel it over the $100 mark?
E-commerce is a tough game. As the firm gets out of logistics and moves deeper into offline commerce, I think there’s a more promising pathway toward sustainable earnings growth. Further, growth in offline may very well help offset a chunk of the growth-eroding recession headwinds that could get stronger in the second half of 2023.
According to Arpan Podduturi, vice president of Product at Shopify, offline is “one of Shopify’s top strategic priorities.”
That’s a big deal. While offline certainly is tougher to grow in than online (at least for Shopify), I see real value in providing the perfect mix for some of its omnichannel merchants. Undoubtedly, the post-lockdown reopening showed us that physical retail is still alive and well.
Though e-commerce still has a ton of good growth days left in the tank over the next several years, I think it’s safe to say that physical stores aren’t going the way of the dodo bird. In that regard, Shopify’s move into offline commerce could be one that enhances growth without hurting future profitability prospects.
Indeed, offline commerce seems like a better path to go down than logistics. Fulfillment is an expensive endeavour with uncertain returns on investment. As Shopify looks to become a powerful force in the physical and digital world, I see considerable upside in the stock.
The bottom line on Shopify stock
As shares continue to give back the post-earnings gains, I’d strongly consider nibbling into a starter position, perhaps if shares reach $75. In any case, $100 seems like the realistic target over the longer term (the next 18 months).
