Shopify overtook Royal Bank of Canada to become the country’s largest company by market cap earlier this month as the stock surged 140% in the last two months alone, and it emerges as one of the biggest winners during the pandemic.
It currently boasts a market cap of 92.3 billion Canadian dollars ($66.4) and has now slipped back to become Canada’s second-largest company by market cap.
Coronavirus has torpedoed economic activity and led most conventional stores to shut down, leaving shoppers to resort to online retailers.
But the future of stock is far less rosy analysts say.
Stock is overpriced
A number of analysts told Markets Insider Shopify’s stock price is not sustainable even if COVID-19 drags on for many more months.
Craig Kirsner, president of Stuart Estate Planning Wealth Advisors, said: “I 100% believe that companies like Shopify and Zoom are overpriced. They are based on the needs of the world right now and that need will go down once we are past coronavirus.”
He added: “I do believe these companies will be more important going forward. However, they are probably overvalued currently, as most bubble-type investments are.”
Robert R. Johnson, professor of finance at Heider College of Business, Creighton University, said: “The valuation of Shopify (SHOP) is, simply put, ludicrous. It is selling at 49 times sales. Not 49 times earnings, but 49 times sales. On a forward PE basis, it is selling at 5000 times consensus next 12 months earnings.”
Shopify posted earnings of $470 million a 47% increase year on year in its 1Q earnings this month.
Johnson cited advice by iconic fund manager Peter Lynch, who led the behemoth Fidelity Magellan fund, stressing that good investments are not only ones that are great products and services but also those companies that have a sustainable business model.
“In essence, there is no economic moat with Shopify. My advice is for investors to use the products offered by Shopify, just refrain from buying shares of its stock,” Johnson said.
Facebook’s partnership with Shopify is a new free tool that helps merchants create a customized online storefront for Facebook and Instagram.
How economies will fare after reopening
Kunal Chopra, chief executive of eTailz, pointed out that the start-up could lose steam if more retailers begin declaring bankruptcies.
“A big driver is whether economy consumer spending may change when economies open up.”
“There may be multiple bankruptcies, especially in the non-essential categories where that is going to [hurt Shopify].
But Ygal Arounian, equity research analyst covering SHOP for Wedbush Securities, thinks potential bankruptcies would help Shopify.
“Our view is that we are not going back to the pre-COVID normal. You are already seeing significant changes in the retail landscape. You are seeing bankruptcies for major retailers’ department stores.”
Arounian added: “It’s a positive for e-commerce and Shopify. It’s going to be a new normal and it’s going to include a lot more online and omnichannel commerce. Shopify will help facilitate that for many SMEs.”
But, Chopra said Amazon’s long-established infrastructure means Shopify won’t snatch a lot of market share in the long-term.
Chopra said: “One advantage Amazon has it has one of the best operational infrastructures in the world. It has fulfillment by Amazon. You don’t get two-day Prime, one-day Prime, on Shopify unless you as a merchant can support that.”
“The other perspective is that that is where consumers are. One of the issues is that Shopify has to direct traffic to its site brand, it has to build that brand presence.”
Though he pointed out, Shopify allows the merchant to own the customer relationship where Amazon doesn’t.
He added: “E-commerce here is to stay and they are both going to compete for market share, you will see a good balance between D2C and market places in the future,” but for now, our “short-term indication is a hold, long-term indication it is a buy.”
TOKYO (AP) — Japanese technology group SoftBank swung back to profitability in the July-September quarter, boosted by positive results in its Vision Fund investments.
Tokyo-based SoftBank Group Corp. reported Tuesday a fiscal second quarter profit of nearly 1.18 trillion yen ($7.7 billion), compared with a 931 billion yen loss in the year-earlier period.
Quarterly sales edged up about 6% to nearly 1.77 trillion yen ($11.5 billion).
SoftBank credited income from royalties and licensing related to its holdings in Arm, a computer chip-designing company, whose business spans smartphones, data centers, networking equipment, automotive, consumer electronic devices, and AI applications.
The results were also helped by the absence of losses related to SoftBank’s investment in office-space sharing venture WeWork, which hit the previous fiscal year.
WeWork, which filed for Chapter 11 bankruptcy protection in 2023, emerged from Chapter 11 in June.
SoftBank has benefitted in recent months from rising share prices in some investment, such as U.S.-based e-commerce company Coupang, Chinese mobility provider DiDi Global and Bytedance, the Chinese developer of TikTok.
SoftBank’s financial results tend to swing wildly, partly because of its sprawling investment portfolio that includes search engine Yahoo, Chinese retailer Alibaba, and artificial intelligence company Nvidia.
SoftBank makes investments in a variety of companies that it groups together in a series of Vision Funds.
The company’s founder, Masayoshi Son, is a pioneer in technology investment in Japan. SoftBank Group does not give earnings forecasts.
Shopify Inc. executives brushed off concerns that incoming U.S. President Donald Trump will be a major detriment to many of the company’s merchants.
“There’s nothing in what we’ve heard from Trump, nor would there have been anything from (Democratic candidate) Kamala (Harris), which we think impacts the overall state of new business formation and entrepreneurship,” Shopify’s chief financial officer Jeff Hoffmeister told analysts on a call Tuesday.
“We still feel really good about all the merchants out there, all the entrepreneurs that want to start new businesses and that’s obviously not going to change with the administration.”
Hoffmeister’s comments come a week after Trump, a Republican businessman, trounced Harris in an election that will soon return him to the Oval Office.
On the campaign trail, he threatened to impose tariffs of 60 per cent on imports from China and roughly 10 per cent to 20 per cent on goods from all other countries.
If the president-elect makes good on the promise, many worry the cost of operating will soar for companies, including customers of Shopify, which sells e-commerce software to small businesses but also brands as big as Kylie Cosmetics and Victoria’s Secret.
These merchants may feel they have no choice but to pass on the increases to customers, perhaps sparking more inflation.
If Trump’s tariffs do come to fruition, Shopify’s president Harley Finkelstein pointed out China is “not a huge area” for Shopify.
However, “we can’t anticipate what every presidential administration is going to do,” he cautioned.
He likened the uncertainty facing the business community to the COVID-19 pandemic where Shopify had to help companies migrate online.
“Our job is no matter what comes the way of our merchants, we provide them with tools and service and support for them to navigate it really well,” he said.
Finkelstein was questioned about the forthcoming U.S. leadership change on a call meant to delve into Shopify’s latest earnings, which sent shares soaring 27 per cent to $158.63 shortly after Tuesday’s market open.
The Ottawa-based company, which keeps its books in U.S. dollars, reported US$828 million in net income for its third quarter, up from US$718 million in the same quarter last year, as its revenue rose 26 per cent.
Revenue for the period ended Sept. 30 totalled US$2.16 billion, up from US$1.71 billion a year earlier.
Subscription solutions revenue reached US$610 million, up from US$486 million in the same quarter last year.
Merchant solutions revenue amounted to US$1.55 billion, up from US$1.23 billion.
Shopify’s net income excluding the impact of equity investments totalled US$344 million for the quarter, up from US$173 million in the same quarter last year.
Daniel Chan, a TD Cowen analyst, said the results show Shopify has a leadership position in the e-commerce world and “a continued ability to gain market share.”
In its outlook for its fourth quarter of 2024, the company said it expects revenue to grow at a mid-to-high-twenties percentage rate on a year-over-year basis.
“Q4 guidance suggests Shopify will finish the year strong, with better-than-expected revenue growth and operating margin,” Chan pointed out in a note to investors.
This report by The Canadian Press was first published Nov. 12, 2024.
TORONTO – RioCan Real Estate Investment Trust says it has cut almost 10 per cent of its staff as it deals with a slowdown in the condo market and overall pushes for greater efficiency.
The company says the cuts, which amount to around 60 employees based on its last annual filing, will mean about $9 million in restructuring charges and should translate to about $8 million in annualized cash savings.
The job cuts come as RioCan and others scale back condo development plans as the market softens, but chief executive Jonathan Gitlin says the reductions were from a companywide efficiency effort.
RioCan says it doesn’t plan to start any new construction of mixed-use properties this year and well into 2025 as it adjusts to the shifting market demand.
The company reported a net income of $96.9 million in the third quarter, up from a loss of $73.5 million last year, as it saw a $159 million boost from a favourable change in the fair value of investment properties.
RioCan reported what it says is a record-breaking 97.8 per cent occupancy rate in the quarter including retail committed occupancy of 98.6 per cent.
This report by The Canadian Press was first published Nov. 12, 2024.
