2022 was not a good year for tech stocks. The IT index fell roughly 35% in the year, and even though the sector rallied in the middle and near the end of the year, it wasn’t enough to counteract the downward momentum. This year has been different (so far). The index has risen up 12%, and even though the growth momentum of the first one-and-a-half months has waned, a proper decline hasn’t started yet.
If you let go of Shopify (TSX:SHOP) stock any time in the past (or haven’t bought it yet), it’s natural to wonder whether 2023 is a good year to add it to your portfolio.
Shopify and the e-commerce market
Shopify still holds a significant piece of the e-commerce website market, and even though its market share is more than double the size of the next largest player (Magneto), it’s significantly behind the top player — Woocommerce. But it’s not an apt comparison. Shopify has a subscription-based model, while WooCommerce, along with WordPress, is free and open source.
While that doesn’t mean that WooCommerce websites are completely free since businesses have to pay for features and add-ons, as they scale up their e-commerce businesses, it’s quite different from Shopify and may offer more flexibility. Shopify, however, is more beginner friendly and takes care of most of the things like security, hosting, analytics, etc., and it’s all lumped in easily monthly subscriptions.
Even though subscription revenue only makes up a segment of the company’s total revenues, the number of merchants and online shoppers are good indicators of the company’s organic growth. However, Shopify’s recent reports (post-2019) don’t offer much clarity regarding these numbers, especially the number of merchants, which is a sign of concern.
If Shopify’s stock recovers to its post-pandemic peak, you can easily grow your capital by over 3.5-fold. But the real question is, will it recover to that level? If we assume that the recent correction has neutralized all the gains made by the stock in 2020 and 2021 and we are back to pre-pandemic levels, then Shopify can be a great buy, assuming it starts going up at its typical pace and keeps that pace for at least a few years.
Even if the probability of the stock moving up at its former pace is relatively low, there is still a strong chance that it will go up alongside a recovering tech sector. A tech sector recovery in 2023 may be a relatively strong probability. If Shopify generates and leverages some optimism in the market, the stock may offer returns disproportionate to a simple, sector-driven recovery and growth.
While Shopify doesn’t reign the TSX as the largest security, it’s still among the largest blue-chip stocks in Canada. In the right market conditions, the stock can offer powerful long-term growth, and if the starting point of that bullish phase is in 2023, then it’s the perfect year to buy or buy back this company.