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HomeInvestorsShopify: Fulfillment Opportunity Is Undervalued but Countered by Near-Term Risks

Shopify: Fulfillment Opportunity Is Undervalued but Countered by Near-Term Risks


The pullback for some stocks in 2022 has been nothing less than brutal. Case in point: Shopify (SHOP). Even after climbing 22% higher over the past week, the shares still sit 72% into the red on a year-to-date basis.

Morgan Stanley’s Keith Weiss puts the underperformance down to “investor concerns around valuation, the pull forward in eCommerce demand, and the shift to a First-Party Fulfillment model.”

More than anything, Weiss believes the main debate amongst investors revolves around the Shopify Fulfillment Network (SFN).

“Is this a big opportunity,” asks the 5-star analyst, “or a high-risk investment lowering the return for investors near-term and lowering the margin potential longer-term?”

Going by channel conversations and an early analysis, Weiss takes a “more constructive view,” believing Fulfillment could play a big part in setting up Shopify as the Direct-to-Consumer (DTC) “counter” to Amazon.

The move to a First-Party Fulfillment model along with the acquisition of Deliverr – the fulfillment solution business Shopify recently agreed to buy for $2.1 billion, making it the biggest acquisition in its history – facilitates a more Amazon-like Fulfillment operation with take rates in the ~16-18% region – similar to Amazon.

That said, the “opening” of Fulfillment by Amazon (FBA) to Non-Prime merchants in Buy With Prime could put Shopify’s attach rate in jeopardy. Furthermore, Weiss remains cautious on GMV (gross merchandise value), believing the upside seen during the pandemic could yet potentially completely reverse and “overshoot to the downside.”

“Bottom-line,” Weiss summed up, “the strong positioning of Shopify in front of large opportunities like Fulfillment present solid upside potential for the stock longer-term; however, that is balanced by near-term macro exposure and limited disclosure from management, balancing the risk/reward profile.”

As such, Weiss resumed coverage with an Equal-weight (i.e., Neutral) rating backed by a $450 price target. Still, there’s upside of 28% from current levels. (To watch Weiss’s track record, click here)

11 other analysts join the Morgan Stanley expert on the sidelines while two others remain bearish. However, 15 Buys offer a counterpoint and provide the stock with a Moderate Buy consensus rating. Moreover, the average price target is a positive one; the figure clocks in at $597.59, suggesting shares have room to climb ~71% higher in the year ahead. (See Shopify stock forecast on TipRanks)

To find good ideas for stocks trading at attractive valuations, visit TipRanks’ Best Stocks to Buy, a newly launched tool that unites all of TipRanks’ equity insights.

Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.



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