Shopify Misses Again as It Continues to Grapple as COVID-19 Eases; Fair Value Estimate Stable at $45

Narrow-moat Shopify reported second-quarter results that once again fell short of our expectations. Although we remain bullish on e-commerce over the long term and the company's plan to build out a fulfilment network, the near-term outlook for Shopify remains uncertain (as evidenced by our very high fair value uncertainty rating) as we search for a new normal for e-commerce as COVID-19 eases. We continue to believe that the Shopify Fulfillment Network is likely to gain significant traction with customers and along with continued penetration of other merchant solutions, should help drive strong growth over the next decade. On July 26, the company announced it was laying off 10% of its workforce based on the admission that e-commerce spending, while growing, had not permanently shifted. It is unusual for a medium-size, rapidly growing software company to undertake a material reduction in force. After results, we lower near-term profitability assumptions but make no material longer-term changes, and thus we maintain our $45 (CAD 58) per share fair value estimate. We see upside to shares from here, but the high uncertainty would focus our attention elsewhere within software.