Once High-Flying Shopify Continues to Struggle

Shopify

Shopify, a certified rock star of the pandemic shutdowns that saw sales and profits soar as consumers flocked to sellers on its platform, is finding itself challenged in 2022 as growth slows significantly and the ardor of investors has cooled off.

After Q1 gains of 47% and 110%, respectively, in 2020 and 2021, Shopify saw its revenue growth slack to 22%, reaching $1.2 billion, in the first quarter of this year. As a result, its share price has tumbled about 75% year to date. It’s gotten to the point where some observers are calling for a risky reverse split of stock.

Shopify has an estimated 1.75 million merchants on its platform, 18,000 of them on the premium Shopify Plus, dwarfed by the estimated 9.7 million sellers worldwide on Amazon.

At least one investment firm, Canada-based Mawer Investment Management, recently exited its position in Shopify due to a number of factors. Director of Research Vijay Viswanathan said in a podcast the business model of recurring subscription revenue plus a cut of transactions was still sound, but increased competition, the riskiness of taking on logistics and its acquisition of Deliverr meant the valuation no longer made sense.

Viswanathan said there were “lots of levers” for Shopify to pull over time and grow the business, including adding marketing services, Shopify Capital, expanding geographically and creation of the Shopify Fulfillment Network in 2019. That year, it also acquired robotics maker 6 River Systems for $450 million.

Other factors weighed on the valuation, he said, including increased competition such as Amazon’s new Buy With Prime program, a slowdown in ecommerce and the $2.1 billion spent on Deliverr this year, which Mawer felt was over-paying for an asset.

“Seeing a slowdown in ecommerce, seeing a slowdown in results at Shopify, it became harder and harder to justify the valuation,” he said. “Ultimately, we thought there were better places to allocate our capital. They made a pretty expensive acquisition in our estimation. It may work out great, essentially moving into fulfillment. But that probably increases the risk, having to get that right in order to continue to compete.”