Shopify stays optimistic despite challenges

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After the pandemic caused by the Covid-19 virus and the World Health Organization decreed a mandatory quarantine, the public opted to shop online. Several companies evolved and started running their business online. This situation fueled the growth of companies like Shopify.

Shopify is a Canadian-based company founded in 2006, its role is to help businesses create and manage their online stores by providing online sales tools and also helps with order delivery. Normally, Shopify charges a monthly fee to merchants to access its services. 

Faced with the global landscape at hand, Shopify CEO, Tobi Lütke, made a projection of the business’ expansion in which he admitted he was overly optimistic. Lütke led the company to make several hires to grow the workforce and cope with the expected high demand.

The CEO acknowledged that this thinking was wrong because, by the end of 2021, Shopify’s workforce had grown to 10,000 people. Now, Shopify is planning to cut about 10% of its workforce, focusing on functions that are too specialized or duplicated.

The company reported its results for the second quarter of 2022, and Shopify posted a loss even though its revenue increased. Compared to a profit of $0.22 per share a year earlier, Shopify had an adjusted loss that came in at $0.03 per share during the second quarter of the year.

The e-commerce company’s total revenue increased 16% year-on-year to $1.3 billion. Meanwhile, monthly recurring revenue was driven by merchant growth on Shopify’s platform, rising 13% to $107.2 million.

Similarly, revenue from subscription solutions grew 10% to $366.4 million, and merchant solutions revenue was positioned 18% higher at $928.6 million. “While commerce through offline channels grew faster in the second quarter, where our exposure is smaller but growing, we continue to see increased adoption of our solutions,” said Shopify’s CFO, Amy Shapero. This “enables our merchants to remain nimble in the face of a challenging macro environment and underscores the breadth and resilience of our business model,” she added.

Shopify’s environment is optimistic heading into the second half of 2022. The revenue outlook looks favorable for the upcoming period of the year. There is a strong likelihood that more merchants will join Shopify during this period.

Year-over-year revenue growth in the Merchant Solutions segment is speculated to outpace revenue in the Subscription Solutions segment for the entire year of 2022. Shopify Fulfillment, Shop Pay Installments, Shopify Markets, Shopify Capital, and Shopify Payments are the solutions that will help with this boost.

According to some specialists, Shopify shares have a potential upside of more than 20%. For example, Kenneth Wong of Oppenheimer, recommends buying the company’s stock. His price target is $45, with an upside potential of 25.3%. Wong asserts that “Shopify is best positioned to capitalize on the continued shift in consumer spending toward personalized online and nuanced channels.”

The overall rating given to Shopify’s stock is a “moderate buy.” The average price is $43.38 and has a potential upside of 20.8%. The company closed Thursday’s trading session with its stock up nearly 2%.

Do you think it is a good time to invest in Shopify’s stock?

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