Shares of Shopify (TSX:SHOP)(NYSE:SHOP) dropped 17% on Thursday, as the company announced it would acquire Deliverr for US$2.1 billion and slower earnings.
What happened?
Shopify stock announced earnings on Thursday that clearly showed the company’s growth was starting to slow. This was certainly not what investors wanted to hear, considering shares dropped another 17%. Shares of Shopify have come down 71% year to date as of writing.
The recent drop came from a combination of slower earnings and the acquisition of Deliverr for US$2.1 billion. This came as the company reported the slowest quarterly growth the e-commerce company had in the last seven years. Further, it missed its profit estimates, sending shares downwards.
So what?
This is a huge deal considering that Shopify stock hasn’t just met estimates in the past, but far outpaced them. Yet even Shopify wasn’t immune to the slowing e-commerce growth around the globe after the huge pandemic-fueled boom.
Revenue rose 22% year over year to US$1.2 billion, missing analyst estimates of US$1.24 billion. Even gross merchandise volume missed estimates of US$45.43 billion, coming in at US$43.2 billion. Furthermore, profit came in at just US$0.20 per share, far below the expected US$0.63.
It goes to show that inflation, labour costs, and customers reducing spending is all hurting the e-commerce company right now. And yet, Shopify stock still went ahead with their cash-and-stock deal worth US$2.1 billion to buy logistics firm Deliverr. This was meant to help expand its goal of having its own fulfillment centres. Deliverr delivers more than a million orders per month across the United States.
Now what?
It’s important to take all this news with a grain of salt. Shopify stock seems to be expanding, despite slower growth, but it could also be taking up opportunities that would be far more expensive after an economic downturn — especially in the tech sector.
So, if you believe in the long-term growth of Shopify stock, it could be a good time to pick up shares. However, if you need that cash anytime soon, Shopify is still an incredibly volatile stock right now. And it’s unlikely to suddenly get back to triple-digit growth overnight.
Still, after this recent drop, Shopify stock is now almost in value territory. Shares trade at just 17.4 times earnings and 4.85 times book value. And this situation does seem to be temporary, as we may be headed into a recession that eventually we will be out of.
When that happens, Shopify stock could climb back to all-time highs, even after a stock split later this year. And that makes your Tax-Free Savings Account (TFSA) the perfect place to perhaps buy a stake and see what happens.
Bottom line
Shopify stock remains volatile but also valuable. Analysts remain confident in the company’s long-term trajectory, though, short term, there will be some major pains during this economic crisis. Long-term investors could certainly benefit by picking up the stock today. But those who need their cash sooner should perhaps stay away from the e-commerce company — at least for now.
