On Tuesday, 3 January this year, Canadian e-commerce company Shopify (Shopify) released a new 'Commerce Components' product, enabling large retail companies, which typically have between $500 million and $1 billion in sales, to integrate selected Shopify components into their own systems. Bloomberg reported that after employees return from their summer break, the Canadian e-commerce company has announced a 'calendar purge', removing all recurring meetings with more than two people. The company's leaders will also encourage employees to refuse other meetings and remove themselves from large internal chat groups. Could these actions and a focus on cutting unnecessary costs lead to a reversal of the pessimism evident in Shopify's share price?
A few words about Shopify
Shopify, a Canadian e-commerce platform founded in 2006, enables businesses to create and operate online shops and handle online transactions. Shopify also offers a range of business management tools, including: payment processing, reporting, social media integration. The company also provides hosting options so that mainly small and medium-sized online shops can be hosted directly on the Shopify platform.
Shopify's business model is mainly based on the payment of fees for online shops to use the platform. There are various payment options, including monthly and transaction fees for each sale made through an online shop on the Shopify platform.
Reuters reports on the company's new product: "The pricing for the service, called Commerce Components, will depend on the retailer's customization and components they choose to use. Currently, subscription for Shopify Plus starts at $2,000 a month and basic costs of $29." Harley Finkelstein, president of Shopify, added: "Commerce Components is fundamentally for a new segment of the market that has historically been underserved... we think this give us a new market to go into"
In addition, the company has announced a change in staff working arrangements, keeping video meetings to a minimum. Long and unproductive meetings are becoming increasingly disruptive for many employees in the workplace, leading many companies to seek to reduce them. Meta Platforms (Facebook) and Clorox (Clorox) are companies that have already introduced meeting-free days. According to Bloomberg, research shows that employees spend an average of 18 hours a week in meetings and only 14% of invitations are declined. In large organisations, attending irrelevant meetings can lead to losses of around $100 million a year.
Source: Conotoxia MT5, Clorox, Daily
Shopify's tough financial situation
While the company can boast of its success over the years, there is no denying the slowdown in its business. Revenues in the third quarter of this year grew by 22% year-on-year, one of the worst periods ever for the company. The company's average annual growth for the last 10 years has been 52% year-on-year. The potential problems could be seen more clearly in the company's operating results, which recorded a record loss that has widened for three consecutive quarters. This has had a direct impact on the company's margins. They fell from a record 81% to minus 61%. Amazon (Amazon), Shopify's main market competitor, maintains a net profit margin of 2.25%.
If the company could even manage to reduce costs by USD 100 million, as reported by Bloomberg, and maintain its current revenue growth rate (e.g. with its new product), the company could achieve a positive net profit. This seems no less likely, but not certain.
What does Wall Street think of Shopify's share price?
According to the Market Screener website, the company has 48 recommendations, and among them the majority are those with the content: "Hold". The average target price is set at USD 40.06, 12% above the last closing price. The highest target price is at USD 60 and the lowest is USD 28.
Source: Conotoxia MT5, Shopify, Daily
Grzegorz Dróżdż, Junior Market Analyst of Conotoxia Ltd. (Conotoxia investment service)
Materials, analysis and opinions contained, referenced or provided herein are intended solely for informational and educational purposes. Personal opinion of the author does not represent and should not be constructed as a statement or an investment advice made by Conotoxia Ltd. All indiscriminate reliance on illustrative or informational materials may lead to losses. Past performance is not a reliable indicator of future results.
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