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Shopify: Look For Another 45% Drop In 2022


  • Shopify gave the short-term bounce that we expected.
  • Longer-term story looks very tenuous at these valuations.
  • Inflation and earnings downgrades will relabel this as "Dropify" in 2022.
  • I do much more than just articles at Conservative Income Portfolio: Members get access to model portfolios, regular updates, a chat room, and more. Learn More »

Shopify Headquarters in Ottawa, Canada

PaulMcKinnon/iStock Editorial via Getty Images

When we last covered Shopify (NYSE:SHOP) we rated this as a rare "Strong Sell" within our coverage. While we were certain of the longer-term outlook, we were a little circumspect about the shorter-term movements. Specifically, we said:

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Trapping Value profile picture

Trapping Value is a team of analysts with over 40 years of combined experience generating options income while also focusing on capital preservation. They run the investing group Conservative Income Portfolio in partnership with Preferred Stock Trader. The investing group features two income-generating portfolios and a bond ladder.

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Analyst’s Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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Comments (277)

Trapping Value profile picture
Well this stirred up the crowd. If SHOP does not trade at 10X current sales (TTM or fiscal 2022) or lower by end of 2022, I won't ever write on it again.
Tall Seller profile picture
So what’s the “Article Update New” here?
Tall Seller profile picture
Visa CEO said the B2B opportunity is $185 TRILLION/year in flows here:
👉🏻 seekingalpha.com/...

…and with $SHOP now the best in the world combined B2B [www.shopify.com/... ] & DTC all things everywhere commerce enabler, HUGE potential growth ahead.
Naples Investor profile picture
@Tall Seller the entire USA economy is less than $20 trillion and we have the biggest economy in the world. Where is the other $165 trillion?
ClearEyed profile picture
Moved order from $300 to $325 and am out fully. Could be a little early, but when this CEO who sold hundreds of millions of dollars worth of stock at the highs announces that he is putting a little fraction of what he sold back in at the lows, it could be enough to get the crazies all pumped again. Will definitely be watching, but don't want to be as greedy for every penny here at the bottom as those others did at the highs.
Tall Seller profile picture
The dip buying still happening.
ClearEyed profile picture
Wow - haven't been around for a while. Interesting to see some of the same posters posting the same sentiment - Bashing the Shorts - still refusing to sell a single share since SHOP was >$1,700 per share. I was here then and I was posting my shorts real time, encouraging others to sell as well. So my conscience is clear. I did what I could - as did others - to encourage the hard core buy and hold SHOP holders to sell.

Really do not know anymore if we have an Amazon repeat here or not. As I warned in so many posts, Amazon took 16 years to regain the highs of 2000. With SHOP in this the new world, really do not know if SHOP will ever regain the >$1500 share price again, or what would be >$150 after the 10x split.

Really - such a shame. Down over $1,200 from the highs. I really do feel badly for you guys but as I said last fall, in 20 years when the next mania hits, you'll be the ones posting as I was posting because you will have lived through and suffered the pain of this insanity, just as I lived through and suffered the pain of the 2000 insanity.

Meanwhile, as I posted earlier this year (in February I think), I plan to start going long in the mid-$300's. Good luck to all.
Trapping Value profile picture
@ClearEyed I wrote another article. Should be out today. 43% target was hit a little sooner than I anticipated.
ClearEyed profile picture
@Trapping Value Thanks - I'll look for that.
Tall Seller profile picture
Hi Tall Seller,
$SHOP is the best omnichannel commerce provider on the world.
Tall Seller
Trapping Value profile picture
$420 in after hours. Goose looks cooked.
Naples Investor profile picture
I wonder how much of this recent fall was because of Amazon's announcement regarding their new fulfillment service. Is that a strategic threat to SHOP?
CatchTheFallingKnife profile picture
@Jeff Durbin

Shopify merchants are also selling stuffs on Amazon/eBay. I think Amazon is forcing partnership deal with Shopify by offering Pay with Prime.

The headline sent SHOP/PYPL/SQ/AFRM back to the dumpster fire.
@Jeff Durbin I think that's a contributing factor but a small one. I think rising interest rates devalues future cash flows, e-commerce is taking a hit under the return to the pre-pandemic-lifestyle narrative, momentum is hurting Shop, and its past earnings relied to a sizable degree on returns on other investments (notably AFRM).

That said, I like Shop, its thesis, and its simplicity. A lot of start-ups jumped in the dot.com era, crashed, and returned to high levels. I need not mention the most obvious one among those here.
Naples Investor profile picture
@daVinci-lite I agree that most growth stocks are getting hit by the rising interest rates but I find it interesting that they are getting hit at different times. Sure, bad earnings reports will slaughter them like Facebook and NetFlix. But SHOP hasn't had that yet.
Trapping Value profile picture
Intra-day SHOP hit $56 billion market cap. With expected sales of about $6.0 billion this year, it has already traded at under my 10X 2022 sales target (see article update comment). So I will be writing on this again.
Tall Seller profile picture
TV. I’d like to ask some questions about your service. How do I DM you privately here? Your profile doesn’t show up on the DM list.
We are about at the price you suggested
Trapping Value profile picture
@Silvio spicacci minervini Close. Only down 35% from $705, but I take your point. That was still the target for 2022. Longer term we are going so much lower that people will want to have associated with this.
Tall Seller profile picture
Shorts always say lower and lower and lower and lower. They try to make they positions pay and pay and pay and pay. Even if it’s not realistic.
Tall Seller profile picture
Got piles of dry powder ready to deploy. Almost pulled the trigger on a few companies today including $SHOP. Sooner or later I will. I mighta missed the bottom by not buying today. We’ll see.
Longbow Archer profile picture
@Tall Seller "Got piles of dry powder ready to deploy."

So which is it? Were you all-in from $1500 on up or did you back up the truck at 900?

Don't you welcome these low, low prices for your massive amounts of dry powder?
Tall Seller profile picture
My CAGR is better than 99.99999% of the shorts here. That’s all that matters to me. Im not a leaf that blows in the wind like self serving panic driven fortune teller day traders.
Trapping Value profile picture
Tough week for the bulls. I did not imagine that we would be down 35% from $703 price in 3 weeks, but here we are. We are due for a bounce but the Fed literally said it wants lower stock prices, so will be tough to get a lot.
Naples Investor profile picture
@Trapping Value I have accumulated 14 shares and I am down a weighted average 18%. I will see if I can get another 6 shares around $346 a share. 20 shares total for a total of $10,000. And then I simply wait. 5 or 10 or 15 years is my horizon.
Longbow Archer profile picture
@Jeff Durbin Don't you think you should hold until the shares dividend? Worked for MSFT - dotcom and Ballmer and all.
Rook3 profile picture
21 Apr. 2022
Can we get an update here? Considering newer events? Anything changed in your eyes? I like to bounce my thoughts with yours in a hypothetical debate and it’s been useful.
Whelp, they called it. It's "only" down 30%, but, close enough.
On the bright side, if $shop keeps losing 5-10% a day you can’t go wrong buying…{checks calendar}…late next week.
This author's thesis and prediction seem to be spot on . . . .
Naples Investor profile picture
@daVinci-lite I buy one share every $25 or $30 it drops. Slowly accumulating a position.
CatchTheFallingKnife profile picture
- Powell is saying .50 rate hike is appropriate to tame down high inflation.

- Powell is saying back to back .50 rate hike is a possibility.

- Powell is looking to run off the balance sheet at a rate of $95B - $120B a month starting May

- EU will announce oil embargo on Russia as soon as France presidential election is over. GS/JPM projected crude to hit $150/b in July.

SHOP new price target is $350.
Ramy Taraboulsi, CFA profile picture
@CatchTheFallingKnife Raising the interest rates will not necessarily tame inflation. It would result in an increased cost of the debt servicing, and where do we get this additional cost? Deficit financing. And what does deficit financing do? Increase inflation. Bottom line: Damn it if they do, damn it if they don't. I don't envy the heads of the central banks around the world....
@Ramy Taraboulsi, CFA There should be more focus on growth to pay down deficits. Raising rates 50-100bps is fine given all the money that’s been printed, but beyond that the fed can’t do anything that could risk growth. Higher rates isn’t going to bring down the car and gas price inflation that’s having an outsized effect on cpi.
Naples Investor profile picture
@Humble_Modesty inflation happens because there is too much chasing too few goods. The Fed needs to pull money out of the economy. It's not rocket science but doing it well is difficult.
Trapping Value profile picture
I was looking for a 45% drop by December 2022. Not in April 2022 itself. Please stop. This won't be any fun if you get there right after earnings.
Honus profile picture
@Trapping Value Credit where due, you nailed this one. Wow. I'm not long, but watching, waiting for an entry I won't immediately regret. Again, kudos.
Trapping Value profile picture
@Honus That timing was of course luck. The decision to stay out of each and every one of these bombs that are going around in growth land, that is what I can take a little credit for. I am blessed in that I have seen this pony show in the 2000s and know exactly how people get suckered in.
Tall Seller profile picture
The shorts have been saying the exact same things sinful $50/share it finally took neat WWIII for them to get lucky.
Good call. Starting to like them as of todays drop…shop and tech in general.
Trapping Value profile picture
NFLX selloff confirms what everyone should know by now. Growth to value transformation is incredibly painful.

If you buy a company at 20X sales (currently unprofitable) and it grows sales at 20% per annum for 10 straight years. At the end of 10 years, the company has an after-tax net profit margin of 16%. 16% is really high by the way, only a handful of companies can manage this in the very long run. Let us assume that your growth phase ends and the company is valued at a P/E of 20. What is your total return over 10 years?

Answer: Negative 1%.
Trapping Value profile picture
@20/20Dividends Lol, cause you expect it to be a lot more?
16 Apr. 2022
Just a 45% drop is really positive imo. Shopify doesnt even make 500 MM in free cash flow over 2022. 50x free cash flow is a 25B market cap. 50x is very generous. Current market cap is 72B, means a 65% drop is in the cards and then still its overvalued.
Trapping Value profile picture
@Tech-Focused Agree and there is no FCF in 2022 or 2023.
Tall Seller profile picture
@Trapping Value

Are you factoring in a whack of massive growth drivers that Shopify is about to roll out? If so, which ones?
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