Shopify Inc.: Buy the Dip

When others are scared, you should be greedy. Buy Shopify Inc. (TSX:SHOP)(NYSE:SHOP) on the dip.

It hurts watching a stock that continues to rise give up over 17% of its value in a matter of days. But that’s exactly what happened with Shopify Inc. (TSX:SHOP)(NYSE:SHOP). Many investors would prefer to sit on the sidelines and watch this one play out, but I’m taking a bullish approach: buy the dip.

Shopify has been on notice ever since Andrew Left of Citron Research, a notorious short-selling firm, released an October report alleging that Shopify was an illegal get-rich scheme. And once Citron decides that something is a target, the company will double and triple down, publishing what it needs to make its point.

Now Left has released a report that states that the company is going to suffer when its clients can no longer do hyper-targeted advertising on Facebook, Inc. (NASDAQ:FB). Facebook is obviously in the limelight due to privacy concerns on the platform; thus, the level of granularity that you can achieve is incredible.

Here’s the thing … I’m not that concerned. Facebook is a great advertising platform, but it’s only one. There are many other platforms out there that allow for intention targeting, and lest we forget, Amazon.com, Inc. (NASDAQ:AMZN) is building out a massive ad network. Where better to advertise than on the largest shopping portal?

And then there are the actual partnerships Shopify has with both Amazon and eBay Inc. (NASDAQ:EBAY). If you’re a subscriber on Shopify’s platform, your goods will be sold through eBay and Amazon. The big ecommerce platforms get a small cut, but you get to be part of their marketing.

That’s the real story here … Shopify has built out so many partnerships and connections that one distribution channel disappearing won’t harm its customers all that much. Facebook is significant, but there are other equally important distribution channels.

That said, I believe you should take advantage of the fear and start buying shares of the company; buy the dip when fear is high. Here are a few numbers to support my argument …

In Q1 2012, Shopify had monthly recurring revenue of US$1.1 million. In Q3 2017, it was US$29.9 million, a CAGR of 77%. It has added a second line of business called merchant solutions, which now accounts for more than 50% of its revenue. As more goods are purchased and shipped, Shopify earns more money. By attaching its business to the success of its customers, Shopify is has an incentive to help the businesses as much as possible.

Another factor to support my argument is that the GAAP operating expense as a percent of revenue has dropped. In full year 2017, it was 57%, down from 59%. And in Q4 2017 compared to Q4 2016, it dropped from 53% to 49%. As it adds more customers, it can spread the sales, marketing, R&D, and general administrative costs across more customers.

It’s possible that Shopify will continue to be bouncy as Citron attempts to derail the stock. However, Shopify’s network is stronger than just one distribution channel. Don’t get trapped in the noise. Buy the dip.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Fool contributor Jacob Donnelly has no position in any of the stocks mentioned. David Gardner owns shares of Amazon and Facebook. Tom Gardner owns shares of Facebook and Shopify. The Motley Fool owns shares of Amazon, eBay, Facebook, Shopify, and SHOPIFY INC.  Shopify Inc. is a recommendation of Stock Advisor Canada.

More on Tech Stocks

Wireless technology
Tech Stocks

Got $5,000? 2 Tech Stocks to Buy and Hold for the Long Term

Here are the best tech stocks to buy, with one offering long-term growth and the other offering strong business as…

Read more »

Tech Stocks

Nvidia Stock Is Making History: Will It Make New Investors Any Money?

Nvidia stock (NASDAQ:NVDA) continues to surge past all-time highs, with shares up 265% in the last year alone! But can…

Read more »

Shopping and e-commerce
Tech Stocks

Shopify Stock Could Be a Major Generative AI Winner

Shopify (TSX:SHOP) stock could be a great gen AI stock pick for growth investors looking for a TFSA titan.

Read more »

woman analyze data
Tech Stocks

2 Tech Stocks I’d Buy in March 2024

High-growth tech stocks such as Datadog and Shopify should be on your shopping list in March 2024.

Read more »

Hand arranging wood block stacking as step stair with arrow up.
Tech Stocks

2 Growth Stocks to Hold for the Next 10 Years

Given their multi-year growth potential and attractive valuations, I am bullish on these two stocks.

Read more »

analyze data
Tech Stocks

If You’d Invested $500 in Nuvei Stock in 2020, This Is How Much You Would Have Today

Nuvei (TSX:NVEI) stock has seen its shares climb to triple digits and fall below IPO prices. So, what now for…

Read more »

Is Nvidia stock a buy?
Tech Stocks

Is Nvidia Stock a Buy After Its Huge Post-Earnings Surge?

Nvidia (Nasdaq:NVDA) stock jumped after the company’s phenomenal fourth-quarter earnings report, and everyone’s talking about a booming future for AI.…

Read more »

crypto, chart, stocks
Tech Stocks

2 Artificial Intelligence (AI) Stocks That Could Go Parabolic

Palantir Technologies stock and this tiny Canadian AI stock could rally as their new platforms bring new customers in 2024.

Read more »