To The Moon

In today's edition, we will track the fundamental readings of long-term bullish companies in strong (TigerTrade Top 1 Gainer) concepts each week and look forward to your attention and discussion.

Disclaimer: Capital at risk. This is not direct financial advice or a recommendation to acquire or dispose of any investment, but for communication only.

 Apple capped off big tech earnings with stronger-than-expected iPhone sales and $90 billion of buybacks and dividends. That helped offset regional banks freefalling, with the market focused on $PacWest(PACW)$ and $Western Alliance(WAL)$ among others. Additionally, JPMorgan Chase “rescued” First Republic Bank to start the week. 

The best-performing industries are travel, internet services, tires, trucking and constructions.

Considering the different perceptions of the stock, this time TigerPicks choose  $Shopify(SHOP)$ to have a fundamental highlight to help users understand it better.

$Shopify(SHOP)$

Shopify is a Canada-based commerce platform that makes it easy for anyone to start and run their business. Shopify has been one of the best-performing growth companies in the past decade, with shares up over 1,500% since 2015. The company suffered early last year but has rebounded nearly 100% from its 52-week low in October, as declining inflation boosted the sentiment of growth stocks.

Shopify has great prospects and is well-positioned to benefit from the ongoing expansion of e-commerce, but I also think there are some notable near-term concerns. The company may see a significant impact on financials as the increased reliance on transaction-based revenue made it much more exposed to the economy. After the rally, the valuation has also become quite elevated compared to peers with similar growth rates.

The beat on revenues

We did not think SHOP would surprise on revenues in Q1-2023. There was a lot of visible slowing during the first quarter and reported volumes from many carriers were painting an abysmal story. We were looking for under 20% on the revenue side growth. So full marks to SHOP to for delivering 25% in an arguably tough quarter.

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What is more remarkable that SHOP managed that with subscription solutions on the cusp of a single digit growth rate. We see this as a lead to what will ultimately come for the second segment within 3-5 quarters. But how did SHOP manage to grow this so rapidly? Well, by growing their expenses even faster.

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Subscription solution fees grew at about the same rate as revenue. But the merchant solutions expense category rose by 45%! As a result, total gross profit is only growing at a 12% run rate. So SHOP is showing complete reverse economies of scale.

One bright spot for SHOP shareholders was that the stock based compensation appears to be taking a breather and was only $138 million. Related to that, the company announced a 20% headcount reduction. This is their second major cost cutting exercise within a year. For Q2-2023, the company expects similar growth rates and a slightly lower stock based compensation number. It also expects to take a severance charge of close to $150 million for work force reduction.

SHOP sold the majority of its logistic business to Flexport

On May 3, 2023, Shopify entered into a definitive agreement to sell the majority of our logistics business, including the people, technology, and services related to these operations, to Flexport, a leading tech-driven global logistics platform. Shopify has been building a world-class logistics solution that is port to porch - giving merchants speed, flexibility and affordability, all with a simple, seamless integration into the Shopify tools they already know and rely on every day. This transaction will take the logistics solution Shopify has been building and place it in the hands of a trusted and mission-aligned partner Flexport.

Under the terms of the agreement, Shopify will receive stock representing a 13% equity interest in Flexport, on top of its existing equity interest. In connection with the closing of the sale, Shopify is entitled to name a director to Flexport's board. Flexport will become the official logistics partner for Shopify and the preferred provider for Shop Promise. This transaction is expected to close in the second quarter of 2023, subject to certain conditions and regulatory approval, as applicable.

Source: SHOP Q1-2023 Press Release

This was a curious decision as SHOP's logistics side has been a key competitive advantage. The company spent $2.1 billion buying Deliverr last year to expand their last mile reach. Since SHOP does not need the cash, this made sale to Flexport little sense to us. It is possible they got a very attractive bid. Expense comparisons post this sale will determine how much SHOP's poor margins will suffer further. The offset here is that they will have an equity stake in Flexport and the company will be SHOP's official logistics provide and a preferred partner.

With the recent price jump the stock has gone back to 10X forward sales.

Seeking Alpha

On a trailing 12 month basis, they're at nosebleed 13.18X sales. While we have come down from the peak madness that we saw in 2020, we have a long way to go here.

Stock Price Forecast:

Here are the target price forecast for the future 12 months from analysts on CNNMoney.com.

The 39 analysts offering 12-month price forecasts for Shopify Inc have a median target of 60.00, with a high estimate of 80.00 and a low estimate of 35.00. The median estimate represents a -3.29% decrease from the last price of 62.04.

Hope this analysis helps you get more understanding of the company's whole image, Tiger Picks will follow up the monthly performance as a longterm track.

Resource:

https://seekingalpha.com/article/4593521-shopify-great-prospects-but-be-patient

https://seekingalpha.com/article/4600022-shopify-do-not-look-at-gift-horse-in-the-mouth

What are your thoughts on $Shopify(SHOP)$?

Bullish or bearish? Please leave your comment below.