Shopify (TSX:SHOP)(NYSE:SHOP) has been one of the most electric tech stocks in all of North America in 2019. Shares have climbed 120% in 2019 as of mid-afternoon trading on September 27. However, the stock has fallen 20% over the past month.
The company has long battled claims of overvaluation. Shopify beat back short attacks in 2017 and 2018, but those questions have persisted. Merchant data at Shopify is not available to investors, and this has inspired short sellers like Andrew Left to call Shopify’s business into question. What are some of those concerns?
For one, Shopify has yet to achieve profitability. It boasts a market cap over $35 billion but trailing-year sales of just $1.3 billion. The company posted a $28-million loss in the June quarter. Still, Shopify has $2 billion in cash and no long-term debt. Shopify has often drawn comparison to Amazon, another e-commerce giant that swallowed losses in order to achieve big growth.
The competition in the e-commerce space is fierce and is set to intensify. Amazon Merchant Services already possesses nearly half of the e-commerce market. Shopify’s share of U.S. e-commerce sales is still in the low single-digits percentage wise. Investors should also consider the entrance of Microsoft, a company flush with cash, directly into Shopify’s space.
Shopify has made doubters look foolish since its IPO, but there is still room for skepticism. Consumer confidence has dropped in the U.S. and Canada, which is another factor to consider for the sector. I’m avoiding Shopify in the fall.
