Shopify Inc. (TSX: SHOP), is a Canada-based e-commerce platform catering primarily to small and midsize businesses. It provides internet infrastructure for commerce, offering tools to start, grow, market, and manage a retail business. The firm currently offers two types of offerings comprising subscription solutions and merchant solutions.

Key Highlights

• Stellar Q4FY21 results: On February 16, 2022, the company came up with its Q4FY21 results which state that the total revenues grew by 41% to USD 1.38 billion vs the total revenues of USD 977.74 million in pcp. To add this, the company proudly revealed that in the past two years they have almost doubled their revenues and almost a surge of 100% in the number of merchants who use Shopify’s services.

• Increase in Gross Merchandise Value: The company reported an increase in its GMV by 31% to USD 54.1 billion for the Q4FY21 as compared to the GMV of USD 41.2 billion in pcp. million for Q3FY21. This spike was much attributable to the Black Friday sale, Cyber Monday in California, taking the sales figures to USD 6.3 billion.

• Outlook for FY22: The company lowered its year-on-year growth for Q1FY22 on account of the absence of government stimulus, rising inflation which will alter the spending habits and behavior of the consumer.

Key Financial Highlights Q4 2021 (in million USD) 

Source: Company report

• Rise in Merchant solutions: For Q4FY21 was 47% USD 1.02 billion as compared to the USD 698.30 million in pcp. This extraordinary achievement of clocking more than a Billion dollars in this segment was for the first time in the history of the company.

• Increase in Subscription solutions: The subscription revenue has reported an increase of 26% to USD 351.2 million vs USD 279.44 million in pcp, majorly on account of the new merchants signing up the platform of Shopify.

• Gross profits: In absolute numbers, the gross profit grew to USD 692.7 million by 37%in Q4FY21 vs USD 504.4 million in pcp.

• Decline in Income from operations: The operating income declined to USD 14.4 million in Q4FY21 vs USD 112.5 million in pcp. The steep decline was because of the rise in its operating expenses where the company incurred USD 275.47 million in sales and marketing expenses which grew by almost 78%, to name a few.          

Valuation Methodology (Illustrative): Price to Book Value     

Stock recommendation

The company reported astonishing numbers on the revenue front by reporting a steep rise of 41% quarterly and 57% rise on an annual basis. The adjusted Net Income for the year 2021 was reported at USD 814.4 million which is 65.75 higher as compared to the net income of USD 491.3 million in FY2020. With various new segments attached to the company, such as TikTok Shopping to the merchants, makes the shopping experience not only easy but enjoyable, are helping the company to keep its innovation curve high. On the valuation aspect, the company is still valued lower on the Price to Book Value multiple (NTM) leaving more room for the stock to catch up with its peers going ahead.   

The stock rallied after touching the lows of CAD 435.03 in March 2020 and shined while touching the highs of CAD 2228.73 on November 21, only to be sold off ruthlessly. The whole technology sector tumbled in the recent meltdown which brings the stock to settle at around the support levels of CAD 900.  The Relative Strength index is currently showing the reading of 33.15 which is heading towards the oversold zone eventually and makes a candidate for a sharp pullback at any time from here.

Considering the cheap valuations of Price to Book Value multiples, strong results and few segments performing exceptionally well, and the deep cut in prices gives the margin of safety for the investors to build on their investment case. Hence, we recommend a “Speculative Buy” rating on the stock at the closing price of CAD 769.18, as on February 24, 2022, at 08:28 AM ET. For the valuations, the peers considered are Intuit  Inc., eBay Inc., PayPal Holdings Inc. to name a few.

1-Year Price Chart (as on February 24, 2022, at 08:28 AM ET). Source: REFINITIV, Analysis by Kalkine Group

*The reference data in this report has been partly sourced from REFINITIV.

Technical Analysis Summary

Disclaimer

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