Does Mr. Market Overvalue Shopify (SHOP)?

Shopify (SHOP) is one of the hottest stocks around. Mr. Market paid $1,117.10 for its shares on 18 March 2021.

That share price has been far higher in recent months. Mr. Market paid $1,474 for Shopify Inc. (NYSE: SHOP) on 16 February 2021

Shopify’s shares experienced astronomic price growth over the past year. Mr. Market paid $322.29 for Shopify on 16 March 2020. Thus, Shopify is a great stock for share value growth, but what value does SHOP have?

They built Shopify’s value on the popularity of its e-commerce software and applications. Those applications are popular in North America.

What Value Does Shopify Have?

Statista describes Shopify (NYSE: SHOP) as the ”biggest name in US e-commerce software.” Statista estimates 30% of American e-commerce websites used Shopify technology in September 2020.

Online sales at e-commerce businesses built on Shopify grew by 50% in 2019, Statista estimates. In comparison, Statista calculates that global e-commerce market grew by 21% in 2019.

However, Statista ranks Shopify as the third largest e-commerce software platform in 2020. Statista estimates Shopify had 10.98% of global market for e-commerce software in April 2020.

The largest e-commerce software worldwide in 2020 was WooCommerce with 28.24% of the market. Squarespace Online Stores was number two with 17.69% of the market in Statista’s calculations.

The largest e-commerce software worldwide in 2020 was WooCommerce with 28.24% of the market. Squarespace Online Stores was number two with 17.69% of the market in Statista’s calculations.

Is Shopify the Future of E-commerce?

Many people think Shopify (SHOP) is the future of e-commerce and one of the few companies capable of competing with Amazon (AMZN).

Over 44 million customers made purchases at Shopify merchants in 2020, WebsiteBuilder estimates. Meanwhile, Shopify itself attracted over 58 million visitors in 2020.

Similarly, WebSiteBuilder estimates over 7,000 businesses use Shopify Plus. Shopify Plus is Shopify’s Enterprise E-commerce Platform. Shopify Plus’s customers include Staples, Kraft Heinz (NASDAQ: KHC), allbirds, Magnolia, and Lindt.

Shopify claims that over 10,000 brands use Shopify Plus and that Shopify Plus is available in 175 countries. Interestingly, Shopify claims its platform could process were 10,978 peak checkouts a minute.

Similarly, Shopify claims there were over 1.7 million Shopify businesses that generated over $277 billion sales on Shopify. In addition, Shopify offers over 3,200 apps to businesses.

Shopify claims its platform hosts over 400,000 active stores and 11,000 active partners. Plus, Shopify estimates over 30,000 people visit its app store each month and those visitors download 33,000 Shopify apps each month.

Shopify and TikTok

Shopify Inc. (SHOP) is offering tools that allow merchants to create, run, and optimize TikTok marketing campaigns from its dashboard. In addition, the Shopify App Store is offering a TikTok channel app, TechCrunch reports.

Those tools include the TikTok Pixel, a tool that allows users to track customers who find a merchant through TikTok. Shopify made the TikTok tools available to all US merchants on 27 October 2020.

To encourage TikTok advertising Shopify is offering a $300 add credit for a business’s first TikTok ad campaign. Such campaigns allow businesses to create video ads for products that feature a button that lets customers buy from Shopify stores.

I think Shopify could grow through TikTok. Impressively, Statista estimates the number of TikTok users in the USA grew from 18.8 million in 2018 to 45.4 million in 2020. Moreover, Statista predicts the number of American TikTok users will grow from 52.2 million in 2012 to 55.8 million in 2022 to 58.3 million in 2023 to 60.3 million in 2024.

Incredible Revenue Growth at Shopify

Data shows Shopify (SHOP) is capable of incredible levels of revenue growth.

For example, Stockrow estimates that Shopify’s revenues grew by 93.55% in the quarter ending on 31 December 2020. Those revenues by 96.49% in the quarter ending on 30 September 2020 and 97.34% in the quarter ending on 30 June 2020.

Similarly, Shopify’s quarterly revenues grew from $505.16 million on 31 December 2019 to $977.74 million on 31 December 2020. Thus, Shopify’s platform growth translates into revenue growth.

How Much Money Does Shopify Make?

Cynical investors; however, will ask how much money does Shopify (SHOP) make?

In 2020, Shopify’s quarterly operating income grew from -$30.08 million on 31 December 2019 to $112.54 million on 31 December 2020. Similarly, the quarterly gross profit grew from $263.89 million on 31 December 2019 to $504.39 million on 31 December 2020.

Comparatively, the quarterly operating cash flow grew from $52.89 million on 31 December 2019 to $245.37 million on 31 December 2020. However, Shopify began and ended 2020 with negative ending cash flows. The quarterly ending cash flow went from -$474.61 million on 31 December 2019 to -$386.29 million on 31 December 2020.

However, Shopify borrowed enormous amounts of money in 2020. It reported quarterly financing cash flows of $1.479 billion and $2.038 billion on 30 June and 30 September 2020. In 2020, Shopify’s total debt grew from $142.64 million on 31 December 2019 to $758.01 million on 31 December 2020.

What Value Does Shopify Have?

The value at Shopify (NYSE: SHOP) grew in 2020. For example, Shopify’s total assets grew from $3.489 billion on 31 December 2019 to $7.763 billion on 31 December 2020.

Thus, the value of Shopify’s assets more than doubled in 2020. Shopify is adding value through its platform growth.

Moreover, Shopify is accumulating cash. Shopify’s cash and short-term investments grew from $2.455 billion on 31 December 2019 to $6.388 billion on 31 December 2020. As a result, I consider Shopify a cash-rich company that could accumulate more cash as its platform grows through opportunities such as TikTok.

Shopify is a Grossly overvalued Stock

Conversely, I still consider Shopify a grossly overvalued stock. Shopify’s growth is impressive, but I see nothing in its financial numbers to justify the $1,117.10 Mr. Market paid for SHOP on 18 March 2021.

I advise investors to stay far away from Shopify (SHOP) until Mr. Market prices it realistically. I consider Shopify a great company that could grow into a software giant.

However, I think Shopify’s stock is in a bubble that will collapse. I recommend waiting until the bubble collapses to buy Shopify.