Should We Buy Shopify Stock Right Now?
Shares of Shopify Inc (SHOP Stock Report) surged 8.5% on Monday on news of a new partnership with Walmart (WMT Stock Report). One of the best investment choices in recent years, SHOP stock has gone up more than 1,600% since 2017. As such, the e-commerce company has claimed the crown for being the largest listed company in Canada.
Shopify will likely quadruple sales on its e-commerce platform over the coming five years. That is according to Piper Sandler analyst Brent Bracelin. The analyst said there are early signs that the coronavirus could drive a permanent structural change to consumer purchasing behaviour.
It is unprecedented for Walmart, the world’s largest retailer, to partner with an e-commerce platform empowering small to medium sized businesses. From the partnership, Shopify’s merchant customers will be able to sell their products on Walmart Marketplace.
As Jeff Clemetz, VP of Walmart Marketplace puts it: “Growing our Marketplace is a strategic priority, and we are going to be smart as we grow. We will start integrating new sellers now and expect to add 1,200 Shopify sellers this year. Shopify has a long history of helping small businesses leverage scale, and we’re proud to be part of the solution that is helping customers and other retailers.”
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New Partnership To Take On Amazon
The move is a win-win for both Shopify and Walmart. First, Walmart gets access to Shopify’s user base. From this deal, Walmart can add items to its online assortment at a much reduced cost to the company. Instead of Walmart going out and onboarding brands to be a part of its marketplace, it can now just leverage its new relationship to let Shopify merchants self-select into the program. Shopify merchants can now have an expanded distribution network and the scale in search advertising Walmart affords. Besides, selling on Walmart’s marketplace poses no risks and would be an enticing opportunity.
Recall that Shopify struck a deal with Facebook (FB Stock Report) last month, whereby Shopify merchants can set up storefronts inside Facebook and Instagram, while managing their products, inventory, orders, and fulfillment directly from within Shopify. Yet, Facebook cannot provide physical outlets like Walmart can, which would be useful for product returns. Hence, can we say that the Walmart deal is a catalyst for SHOP stock?
Shopify is also building a US distribution network to store and ship products for its merchant customers. This could be seen as a move to take on Amazon (AMZN Stock Report). The partnership is the latest swing at Amazon, a behemoth that has revolutionized the world of e-commerce with its online marketplace, massive warehouses and speedy delivery services. The Walmart-Shopify partnership could prove to be fruitful, with Shopify’s inventory management to complement Walmart’s businesses. Some have even speculated that such a partnership could pave the way for a future acquisition.
The Road Ahead For Shopify
It’s worth noting that SHOP stock has already doubled so far this year. The company ticks off many of the boxes that investors should be looking for. The stock was a big winner in 2019 and again during the coronavirus market rally. Many analysts have also upgraded Shopify stock on Monday to overweight (buy) from neutral (hold). Bracelin raised his price target to $843, up from its previous level of $733. That represents an upside of approximately 5% from Monday’s closing.
Currently, the company helps more than 1 million merchants across 175 countries to sell, market, and manage their products. In return, it earns subscription fees. More partnerships with companies like Facebook and Adobe (ADBE Stock Report) also help its expansion in other markets. And now, Walmart is in as well. With sales expected to quadruple by 2025, is Shopify stock a buy right now?