4 Shopify Facts You Need Before Buying Stock

Shopify (NYSE: SHOP) reported stronger fourth-quarter earnings. Soft guidance lowered e-commerce platform shares, which are down about 17% from their 2024 peak. The current slump may encourage investors to add Shopify to their portfolio. But first, here are four things to know about this top e-commerce stock.

Shopify offers Shopify lets anyone in 175 countries instantly create an online store and start selling. Besides payment processing and checkout, the firm offers inventory management, shipping, marketing, and multi-channel sales. The Shopify developer ecosystem and app marketplace allow merchants to customize their experiences.

Shopify processed $235.9 billion in gross merchandise volume in 2023. Over the past year, this figure rose 20%. Merchant and subscription solutions generated $7.1 billion last year.

Optimizing operations Shopify bought Deliverr for $2.1 billion in 2022. The goal was to become more like Amazon, offering a distribution and logistical backbone for its millions of customers to trace deliveries. Shopify planned to invest heavily in capital expenditures that it could monetize with recurring shipping fees.

Management changed course last year and sold its fulfillment unit. The transaction increased Shopify's share in Flexport, its logistics partner. This makes sense because Shopify can focus on creating innovative software and tech solutions that merchants want.

Additionally, it frees up capital, boosting firm profitability. Shopify earned $132 million in 2023. Analysts expect adjusted EPS to climb 35% annually over the next three years.

Sensitivity to macro forces Shopify has grown rapidly due to the secular development of internet purchasing. SaaS and cloud-based platforms that scale quickly are helping the cause. This company looks like a tech company.

However, Shopify's macroeconomic sensitivity is hard to ignore. Growth has slowed substantially in recent years due to increasing interest rates, inflation, and recession fears. Shopify is targeting larger retailers, to its credit. The firm still serves small- and medium-sized businesses, which are significantly influenced by the economy. As a downturn approaches, these enterprises fail frequently. This could hurt Shopify's finances.

High hopes Shopify has been one of the strongest stocks in recent years, despite its volatility. Shares are 55% below their peak. However, this stock is pricey. This product has a P/S ratio of 13.9. That multiple is far higher than Amazon, MercadoLibre, Etsy, and eBay's. Even though Shopify's P/S ratio is significantly below its historical average of 22.6, that's a high price given its growth potential.

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