October 4, 2023


Business&Finance Specialists

Shopify Stock Seen Carrying Weight of Canada Curse Into 2023

4 min read

(Bloomberg) — The curse of Canadian mega-cap technology stocks hit Shopify Inc. this year, and analysts see little relief ahead for the e-commerce company’s shareholders.

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Shopify shares have tumbled 70% in 2022 and brokerages see a gain of only 2.2% for the Ottawa-based company’s shares in the next year. That’s the lowest expected return among this year’s 10 worst-performing Canadian and US tech companies with market values of $20 billion or more.

A huge rally early in the pandemic made Shopify the third technology business since 2000 to become Canada’s most valuable company. Its rise and subsequent fall is an echo of its two predecessors: Nortel Networks Corp., a darling of the dot-com era, later went bankrupt. BlackBerry Ltd. lost its dominance in smartphones and the stock has collapsed 96% from its 2008 heyday.

“Shopify has suffered alongside other high-growth tech stocks over the course of the past year,” said Sylvia Jablonski, chief investment officer of Defiance ETFs. The stock soared during the last couple of years “around the idea that e-commerce was really the only commerce due to Covid.”

The company’s C$57.6 billion market value ranks it 14th in size in Canada, according to data compiled by Bloomberg. At its peak in November last year, Shopify was the biggest, at C$268.7 billion.

Shopify lets merchants set up websites for online sales, allowing them to manage inventory and process payments, among other things. The business boomed during the pandemic, only to come crashing down this year, hampered by an economic slowdown and an easing of Covid-19 restrictions.

“Selling shovels to miners in an e-commerce gold rush is the perfect business,” Michael Morton, an analyst at MoffettNathanson, wrote in a note. “Shopify seized the opportunity and now powers 11% of all U.S. e-commerce.”

The business, though, is becoming more capital intensive, and there are questions around its profitability, said Morton, who has a market perform rating on the stock.

Now that business is slowing, Shopify, like other big technology companies, is cutting jobs, acknowledging that its decision to expand rapidly coming out of the pandemic didn’t pay off. The company, which had net income of $2.9 billion last year, is forecast to lose $3.1 billion in 2022.

After the battering that Shopify’s stock has taken this year, bulls are hoping it can avoid the fate of Nortel and BlackBerry of sinking into irrelevance or worse. Shopify is second only to Amazon.com Inc. in the still-growing e-commerce industry, and it’s “miles ahead” of competitors like Wix.com Ltd., said Charlie Miner, senior analyst at Third Bridge.

Shopify’s stock is still up 1,600% from its 2015 initial public offering price.

“As Covid tailwinds continue to subside, Shopify must find new ways to boost revenue from existing customers,” Miner said. “Shopify is caught between having to decide whether to appease investors in the short term and cut costs or continue its aggressive growth strategy.”

Tech Chart of the Day

Optimism over China’s reopening has driven a gauge of US-listed Chinese stocks to close above its 200-day moving average, a key technical resistance level, for the first time since June 2021. The Nasdaq Golden Dragon China Index, which consists of 65 Chinese stocks including internet giants such as Alibaba Group Holding Ltd. and JD.com Inc., has rallied more than 50% from a low in October. That said, with the index approaching overbought levels, it fell 3.5% in early Wednesday trading even after Beijing eased Covid restrictions further

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–With assistance from Tom Contiliano and Henry Ren.

(Updates to market open.)

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