Shopify, Inc. (SHOP) faced market volatility and a sharp decline in value over the past five months. The stock underperformed the S&P 500, declining by roughly 72.9% compared to the S&P 500’s loss of around 13.3% over the past year. Hedge funds have been actively selling Shopify’s shares, but the stock rose on the WhaleWisdom Heatmap to a rank of 14 from 22.
Shopify is a multinational e-commerce company that takes a platform business model approach to cloud-based commerce for small and medium-sized businesses. Shopify helps merchants connect with consumers by providing the software to establish their e-commerce website, manage inventory, process orders and payments, and monitor sales activity through Shopify’s analytical and reporting tools.
In May, Shopify announced that it would acquire Deliverr, Inc., an e-commerce fulfillment company that provides solutions to e-commerce marketplaces such as eBay, Etsy, Amazon, and Walmart online. The acquisition is valued at approximately $2.1 billion and will enable an end-to-end logistics platform that would reduce supply chain logistics for merchants and help Shopify’s Fulfillment Network (SFN) better manage merchant inventory. The acquisition can make the fulfillment process easier on merchants with shorter delivery time options for consumers.
Hedge Funds Sell
Shopify saw hedge funds selling in the first quarter of 2022, with the aggregate 13F shares held by hedge funds lowered to approximately 19.2 million from 21.0 million, a change of roughly 8.8%. Of the hedge funds, 49 were created, 87 were added, 81 closed, and 80 reduced their positions. Institutions sold and decreased their aggregate holdings by about 4.4% to approximately 75.2 million from 78.7 million.
Positive Earnings Estimates
Analysts expect to see earnings modestly rise in 2022 and 2023, bringing earnings per share to $2.52 by December 2023, up from an estimated $1.03 for December 2022. Estimates are also optimistic for revenue, with an anticipated rise by the end of 2022 to approximately $5.8 billion. Momentum is expected to continue into 2023 and bring revenue of about 7.7 billion by December 2023.
Price Targets Cut Following Q1 Earnings Miss
Many analysts have cut price targets following Shopify’s disappointing first-quarter earnings report. Another development that garnered analysts’ attention was Shopify’s announced deal to acquire Deliverr. Shopify also plans to reinvest gross profits back into its business to pursue expansion to more merchants, grow product development, and strengthen its partner ecosystem. Analyst Ygal Arounian of Wedbush Securities responded to Q1 earnings by lowering the firm’s price target on Shopify to $538 from $630. Arounian maintained an Outperform rating on the stock. Mizuho dramatically cut the firm’s price target on Shopify to $400 from $800 and kept a Neutral rating. Robert W. Baird analysts lowered their price target to $630 from $1000, indicating potential upside for the stock. Citigroup analyst Tyler Radke also responded to an overall weakening e-commerce trend by lowering the firm’s price target on Shopify to $432 from $534.
Optimistic Outlook Beyond 2022
While Shopify’s growth has slowed, 2023 revenue and earnings estimates are encouraging. Many analysts lowered price targets in May, though indications are that the stock’s actual value is greater than the stock price. Shopify may be an opportunity suited best for patient investors.