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Why Did Shopify (TSX:SHOP) Stock Plunge 25%?

Ryan Vanzo
A stock price graph showing declines

Shopify (TSX:SHOP)(NYSE:SHOP) stock has consistently been a huge winner. From 2016 to early 2020, shares moved from $35 to $700 — an increase of nearly 2,000%!

But that impressive performance doesn’t mean shares have gone on a straight line higher. Over the years, there have been plenty of dips. In every instance, the dip was a buying opportunity.

In recent weeks, Shopify stock has fallen by 25%. The coronavirus bear market is clearly to blame. As with historical pullbacks, this looks like a clear buying opportunity.

Capitalize on fear

Shopify isn’t trying to capitalize on a short-term growth opportunity. In fact, the company is positioned to benefit from a shift that could last another decade or two: digital retail.

You’re likely familiar with the biggest internet stock on the planet, Amazon.com. With a $1 trillion market cap, Amazon dominates digital retail. But importantly, it focuses on an aggregator model. You go to Amazon, search for a product, and see all of the items for sale in a single place.

But what about companies that want to control their own retail experience? Amazon dominates the market, but we’ve all made purchases online from other sites, often from the manufacturer directly.

Unless you want to cede your entire shopping experience to Amazon, these companies need to build their own website. Easier said than done. While there are some website builder tools available, retail businesses require much more than a pretty aesthetic. They need payment processing, inventory management, promotional capabilities, marketing tools, and much more.

Shopify noticed this gap in the market and created the first platform built specifically for independent retailers.

Today, the Shopify platform serves thousands of customers from Fortune 500 companies to scrappy entrepreneurs working out of their garage. The platform is that easy to use, and that powerful. You’ve likely shopped at a Shopify-powered site before without knowing it. That’s because the tools are completely customizable, even though they don’t need an engineering background to use.

Global e-commerce sales were $1.3 trillion in 2016, growing to $3.5 trillion in 2019. By 2023, digital retail sales are expected to surpass $6.5 trillion. This is an incredible opportunity for Shopify stock, especially since it takes a small cut of every item that is sold through its platform.

Shopify stock is still a winner

Over the last five years, Shopify has grown its sales by 70% per year. Sales are expected to continue rising by 40% or more per year over the next five years. The coronavirus bear market may put a small dent in that forecast, but long term, it’ll be just a small blip.

In fact, Shopify has the opportunity to grow stronger during the downturn. That’s because platform businesses gain steam over time.

Platforms like Shopify simply build the basic infrastructure, letting others build on top of it. Any developer worldwide can create a new capability on the Shopify platform and sell it to businesses that use Shopify to power their stores. This development makes the platform more enticing for potential businesses.

More business customers incentivizes new developers to build more capabilities, which incentivizes more customers, which again incentivizes more developers. It’s a powerful feedback loop.

“Once you attain platform status, it’s nearly impossible for others to catch up,” I wrote last month. “There’s a reason why app developers only focus on iOS and Android phones. The same goes for e-commerce. Shopify’s lead is already huge, and every day, the company’s competitive advantage strengthens.”

Shopify is built for the long term, and the recent dip is just another buying opportunity.

The post Why Did Shopify (TSX:SHOP) Stock Plunge 25%? appeared first on The Motley Fool Canada.

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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. David Gardner owns shares of Amazon. Tom Gardner owns shares of Shopify. The Motley Fool owns shares of and recommends Amazon, Shopify, and Shopify. Fool contributor Ryan Vanzo has no position in any stocks mentioned.

The Motley Fool’s purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool Canada’s free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. Motley Fool Canada 2020