The Era of COVID Lockdowns is Officially Over; $SHOP Plunges

Shares of SHOP are down 17% after posting what appeared to be solid results. But that was’t good enough. The also suggested growth would slow in 2022 due to an end of the COVID era lockdowns.

Year-over-year revenue growth to be lower in the first quarter of 2022 and highest in the fourth quarter of 2022 due to three factors. First, we do not expect the COVID-triggered acceleration of ecommerce in the first half of 2021 from lockdowns and government stimulus to repeat in the first half of 2022. Second, our new terms with apps and theme developers cause two differences from last year’s first quarter: the elimination of Shopify’s rev share on partners’ first million dollars of revenue annually reset on January 1st, and the shift from gross to net revenue recognition for the sale of themes as a result of revised contract terms with our theme partners. Since these terms didn’t come into play until the second half of last year, these will be a headwind to Subscriptions Solutions revenue in the first half of 2022, particularly in the first quarter. And third, we expect certain commercial initiatives and sales and marketing investments will gain momentum over the course of 2022.

We have seen this story play our painfully the past year, as once high flyers come crashing back down to earth. It started with ZM and DOCU and now its hitting the online stores like AMZN, SE, and SHOP. The basis for valuation is simple. What were the pre-covid price to sales and where are they now?

SHOP is now trading 21x sales, even with the stock CUT IN HALF in 2022. In 2018, the shares were valued at 18x. There’s your line in the sand. Another 10-15% lower from here and perhaps a bottom gets put in, providing the economy doesn’t fall apart.

SE is already trading at 2018 valuations and ZM is below it.

The fact normalcy is creeping back into the economy is of course good news and we’d like to see people going out again, eating out, going on trips. I suspect once the lunatics remove all of their restrictions for vaccines — we might see a true revival in GDP. Until then, restrictions are abound and people would rather not shop online anymore. Perhaps they’ve gotten sick of it and want to hide their money under their mattresses? Or, maybe just maybe the wealth effect of runaway stocks and cryptos has truly reversed, given the negative returns, and discretionary income amongst the dumbest people on the planet is now lacking.