Equity research: Shopify Inc.

• Autor(a) principal: Borges, João Henrique Fernandes Gonçalves
• Data de Publicação: 2022
• Tipo de documento: Dissertação
• Idioma: eng
• Título da fonte: Repositório Científico de Acesso Aberto de Portugal (Repositórios Cientìficos)
• Texto Completo: http://hdl.handle.net/10071/28291
• topic: Comércio eletrónico -- E-commerce; Avaliação de empresas -- Business valuation; Digitalization; Business-to-Consumer; Business-to-Business; DCF Discounted Cash Flow --; Custo médio ponderado de capital Weighted average cost of capital (WACC); Múltiplos e comparáveis; Digitalização

Shopify is a Canadian company that caught the eye of worldwide investors due to its fast-growing tech-enabled business. Within the core of its operations, we find software that enables almost any merchant to build an online shop with little to no previous knowledge of programming. Its subscriber base is diverse and the services offered are tailored to serve small, medium-sized and big-sized merchants. Its growth strategy is based on increasing its subscriber base and then generating additional revenue through the tools they provide to its merchants to manage their daily operations. In 2021, the global pandemic directly affected the demand for Shopify shares. Shopify’s stock rose to record high levels as investors saw in Shopify´s online network of merchants, a good retail hedge for the impacts caused by the government closing of all non-essential businesses. Across 2022 and as we move further away from the pandemic the stock has been steadily decreasing from its all-time high of USD 176.3 to USD 34.2 as of 30th October 2022. The main goal of this equity research is to reach the fair value of Shopify. Several valuation methodologies were carried out to value Shopify: the Discounted Cash Flow model through the FCFF and FCFE methods and the multiple-based valuation through EV/EBITDA and the Forward P/E ratio. Complementary to the 5-Year Discounted Cash Flow Method, a sensitivity analysis table was also included to understand the impacts of some of the most critical assumptions considered in the presented valuation such as the WACC, the growth rate and the cost of equity. The valuation based on the FCFF results in a fair value for Shopify stock at USD 20.6, followed by the value obtained through the FCFE methodology at USD 21.4. The valuation through the multiples resulted in a share price of USD 18.3 and USD 33.7 corresponding to the EV/EBITDA and Forward P/E ratio respectively. The value at which the stock is currently trading above the fair values through the application of the models and as result the final recommendation is to sell.