Canadian e-commerce company Shopify (NYSE:SHOP) took another hit yesterday, with SHOP stock closing down 2.7%. That follows a steep drop earlier in September after the company announced the acquisition of a warehouse robotics company, and another 5.1% drop last Friday. Since its peak of $406.99 near the end of August, high-flying SHOP has dropped to $328.82 — a decline of 19% in just three weeks.
SHOP Stock: Shopify Takes a Hit on Secondary Share Offering
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Is the bubble bursting on Shopify stock, or does the recent beating the company has taken make it an attractive target for long-term investors? Here’s a look at what has happened over the past three weeks that has had investors souring on SHOP.
6 River Systems Acquisition
On Sept. 9, Shopify announced it was spending $450 million to purchase 6 River systems:
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“Shopify is taking on fulfillment the same way we’ve approached other commerce challenges, by bringing together the best technology to help everyone compete … With 6 River Systems, we will bring technology and operational efficiencies to companies of all sizes around the world.”
The purchase of the company that specializes in robotic warehouse fulfillment solutions signaled that Shopify was better positioning itself to take on Amazon (NASDAQ:AMZN). The move bolsters Shopify’s logistics capabilities, and gives member merchants access to cheaper and more effective shipping and warehousing services. In addition, with the acquisition, Shopify also lands the founders of 6 River Systems. The executives who had previously helped to develop Amazon’s robotic fulfillment systems bring valuable knowledge and experience to the company.
SHOP stock dropped on the news of the 6 River System acquisition, taking a 6% hit. There was a recovery over the next several days as investors mulled the long-term implications of the deal, but that was short-lived.
$603 Million Secondary Share Offering
On Sept. 16, Shopify announced the pricing of 1.9 million class A subordinate voting shares. At $317.50 each, SHOP says the net proceeds of the offering are expected to be just over $603 million. In a press release, the company says it “expects to use the net proceeds from the Offering to strengthen its balance sheet, providing flexibility to fund its growth strategies.”
The market wasn’t thrilled with the news, sending Shopify stock down 2.7% on Tuesday.
SHOP Stock: Buy Now or Wait?
After three weeks of turmoil and a 19% decline in value, SHOP stock is now cheaper than it has been in a month. Given the spectacular growth rates seen year-to-date (at least until September), does this make it a buy? Or is the bubble bursting on this Canadian company?
Two InvestorPlace contributors have recent thoughts on the situation, with mixed takes. James Brumley thinks the selloff has largely run its course and the company is well-positioned for even faster growth. Meanwhile, Josh Enomoto has concerns that the sales numbers being generated by most merchants using the Shopify platform are less impressive than they sound. He also worries many of these small merchants are at risk should we hit a recession. The vulnerability of the small players that make up so much of Shopify’s user base means the sustainability of SHOP’s meteoric growth is questionable.
Analysts polled by the Wall Street Journal also seem somewhat split on SHOP stock, with 11 of 27 currently recommending it as a “buy” and 11 having it as a “hold,” although only one is suggesting clients sell their SHOP holdings. With a 12-month average price target of $368.43 they seem to feel Shopify stock still has significant upside. Although the past three weeks have shown you can expect to see a little turbulence before it gets there.
As of this writing, Brad Moon did not hold a position in any of the aforementioned securities.
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