Shopify (NYSE: $SHOP) has seen a sharp decline after reaching new all-time highs of $825 USD, earlier this week.
The company stated previously this month that they are “handling Black Friday level traffic every day” and subsequently became Canada’s most valuable company, worth a staggering 100 billion USD – dethroning the long-standing Royal Bank of Canada.
Although the stock price has declined, the company could celebrate a revenue growth of 47% YoY, totalling $470 million, in their first quarter. Despite these promising figures, the stock is still far ahead of analysts’ estimates, averaging about 513 USD – which is 45% below the current price.
Additionally, the net losses for the first quarter reported at $31 million could be a cause for concern, compared with a net loss of $24 million for the first quarter in 2019.
Furthermore, as lockdown restrictions are starting to ease across the globe, stores are gradually starting to reopen, and analysts are concerned this could have a negative impact on the company.
The firm, however, does not share the same concern, stating that they are uniquely positioned to help entrepreneurs start online businesses and adapt to an evolving commerce landscape.
The pandemic will continue to accelerate the shift of purchase habits to eCommerce – Shopify Financial Update.
As some argue the pandemic would change how consumers shop permanently, one might argue the business model of Shopify will continue to thrive for years to come as consumers conform to the rise of eCommerce.
In spite of this, Shopify’s worsening losses might result in investors waiting before they pull the trigger. As the company are currently facing negative earnings and a P/E ratio of 1389x consensus to 2021 EPS, shareholders will want to see a paved road to profitability.
62% growth in new stores created between March 13, 2020 and April 24, 2020.
Although investors might belittle the negative earnings as the company continues to surpass estimates and deliver a strong outlook for future growth, the challenge is obvious:
Can Shopify continue this historic growth whilst people all around the world are slowly starting to head out to support the brick and mortar businesses?