The pandemic gave, and the pandemic took away. In some cases, the pandemic gave, and the pandemic also took away once it started to show signs of leaving. That’s what likely happened to Shopify (SHOP), a pandemic darling that’s starting to get hit with post-pandemic conditions. The company lost 14.2% in premarket trading on Thursday, and those losses continued into Thursday’s trading as well.
With economic conditions shifting so rapidly, and few of them likely to benefit Shopify, I’m turning bearish on this company. There’s not a lot looking good for it right now.
The last year for Shopify features modest gains, a bit of plateauing, and then a slow collapse. Since just November 2021, Shopify has lost close to three-quarters of its value.
The latest news proves no help as the company rolled out its earnings report. The company posted earnings of $0.20 per share, well below projections that called for $0.64 per share. Revenue also faltered, coming in at $1.2 billion, against projections calling for $1.25 billion.
Perhaps worse was the company’s future outlook. Considered “cautious” by some investors, it projected more faltering revenue as customers returned to stores and the need for online-only shopping fell with it.
Wall Street’s Take
Turning to Wall Street, Shopify has a Moderate Buy consensus rating. That’s based on 14 Buys, 15 Holds, and one Sell assigned in the past three months. The average Shopify price target of $881.23 implies 114.9% upside potential.
Analyst price targets range from a low of $460 per share to a high of $1,500 per share.
Investor Sentiment Turning Remarkably Negative
Investor sentiment is increasingly turning against Shopify, and in some very pronounced measures.
Based on the TipRanks 13-F Tracker, hedge funds got out of Shopify by one of the widest margins in years. While hedge fund involvement was on the decline since September 2021, the difference between December 2021 and March 2022 is the single biggest shift in the last two years.
Insider trading, meanwhile, is another firestorm of sell orders. In the last three months, insiders sold around $14.5 million in Shopify shares. They bought nothing. In fact, the last time a buy transaction was executed was back in November 2021. For the last year, sell transactions outstrip buy transactions by 264 to 20.
As for retail investors who hold portfolios on TipRanks, they’re not much better. While Shopify ownership is up for the last 30 days — portfolios with Shopify increased 5% — they’re down over the last seven days, with 0.4% of portfolios getting out.
Times are Changing
It’s seldom a good sign when you can describe a company’s likely trajectory with Bob Dylan lyrics.
Shopify, back during the pandemic, benefited from a remarkable and largely unique situation. While people had money, there was little that they were actually allowed by government mandate to do with it.
Shops’ physical presences closed, as did most entertainment venues. For shops to be able to do business of any sort, they needed an online presence, or at least be selling “essential” goods.
That gave Shopify a massive leg up. Shops formerly open turned to Shopify to establish an online presence and continue to function. With shops largely open again with only handfuls of conditions — and those sparsely enforced — the need for Shopify has declined.
Shopify is fighting back; the company recently acquired Deliverr, a logistics startup, for a hefty $2.1-billion price tag. With Deliverr, Shopify can provide a more complete logistics platform. In turn, that allows small businesses to better use their agility to compete with larger firms.
Yet in the end, Shopify suffers from the same conditions that many other online shops are suffering from right now: a decline in disposable income.
Several companies similar to Shopify, like Wayfair (W), Etsy (ETSY) and eBay (EBAY) all lost ground in Thursday’s premarket trading. Earnings were starting to decline all over, and with good reason.
Concluding Views
Shopify has some staggering upside potential right now. The company is trading under its lowest price targets. Based on the larger macroeconomic environment right now, those price targets might better be called pipe dreams.
Branching out online is increasingly a nice-to-have, just as it was back in the late 2010s. It’s not the must-have that it was in 2020, and hopefully, it never will be again.
Ultimately, that’s bad news for Shopify.
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