As far as Canadian technology companies go, Shopify Inc. (TSX:SHOP)(NYSE:SHOP) has to be the most recognizable company on the TSX today. Shopify shares have been stunningly buoyant in very turbulent waters which have sucked many Canadian firms down into the undercurrent in recent weeks.
Shopify’s situation has remained relatively the same since the company had its initial public offering (IPO) a few years ago – no substantial earnings (losses pretty much every quarter), but accelerating revenue each and every quarter, continuing to beat analyst estimates every single time. The question many investors, such as myself, have for Shopify in this environment is just how likely a continued sky-high growth rate is for new customers, considering the core clientele of Shopify happen to be Small and Medium Enterprises (SMEs).
I do think that a key risk investors have with a growth story like Shopify right now is uncertainty with respect to the churn rate of existing customers, given roughly three million Americans have applied for unemployment insurance weekly in March, an incredible reality which is only starting to set in.
Many of these layoffs were from SMEs who are teetering on the brink of bankruptcy right now. Shopify remains far too speculative at its current valuation, and I think the unfortunate reality is this company’s stock price could have a long way to drop in a short amount of time, in my opinion.
Invest wisely, my friends.