The Shopify (NYSE: SHOP) stock price dived by over 10% on Monday as last week’s spectacular rally faded. The shares are trading at $683, which is significantly lower than last week’s high of $780. This price is also 60% below its all-time high, bringing its market cap to $98 billion.
Shopify recovery falters
Shopify is one of the biggest e-commerce companies in the world. The company offers a piece of software that enables people to set up their online shops within a matter of minutes.
Shopify makes money in a number of ways. For example, it charges all its sellers a monthly maintenance fee that starts at $29 per month. Its most advanced package costs $299 per month and it offers additional features like more staff accounts and advanced reports.
Shopify has more ways to make money. It takes a cut for every sale made. For example, it takes 2% to complete a transaction that is not made using Shopify Payments. It also has its payment processing charges.
Therefore, Shopify emerged as one of the biggest beneficiaries of the Covid-19 pandemic. For one, the pandemic led to more job losses, which incentivized people to start their personal online shops. They turned to Shopify to do that. Further, the number of online purchases increased significantly during the pandemic.
As a result, Shopify growth has been strong. Its revenue in 2020 rose to $2.9 billion from the previous $1.57 billion. In 2021, this revenue jumped to over $4.6 billion. It has also become a profitable company as its net income has jumped to over $2.9 billion.
Why Shopify stock price has dropped
The Shopify share price has dropped sharply in the past few months as concerns about the company’s growth remains. Investors expect that the overall growth will turn lower as the world economy opens.
Also, many shops that opened during the pandemic will likely close since most new businesses fail. On Monday, the stock dropped because of the hawkish statement by the Federal Reserve chair. It also fell because of the overall weak performance of other e-commerce companies.
Still, in the longer term, Shopify seems like a good investment for several reasons. It is a market leader in its business, has millions of customers who pay a monthly fee, and it has a low churn. Also, while its Covid-19 growth will slow, the company has more room.to grow in the long term.
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