Shopify Stock Plummet After Morgan Stanley Claimed the Company’s Fulfillment Network Would Have a “Negative Effect on Profitability.”
Shopify Stock (NYSE:SHOP)
According to Morgan Stanley, fulfillment pursuit of Shopify stock makes its road to profitability more challenging.
On Tuesday, equity analyst Keith Weiss said that competing with Amazon (NASDAQ:AMZN) in shipping remains front of mind for investors. He did, however, imply that the expenses of constructing this network outweigh the possible benefits at the present time.
From what we can see, Weiss is right when he says that the multi-billion dollar investment cycle required to build up Fulfillment is simply the beginning of a long and winding road to meaningful operational profitability. Because of the increased rivalry between Amazon and Shopify (NYSE:SHOP) products, this trend is unlikely to be an accretive addition to Shopifys earnings power.
Weiss reduced his margin and operating income projections because of the expected investment cycle. He thinks the negative effect on the bottom line more than cancels out the expected favorable effect on the top line.
Fulfillment is expected to negatively impact profitability, and we struggle to see how Shopify (NYSE:SHOP) can inflect operating margins to be profitable in the long run.
Weiss maintained a Hold-like rating but reduced his price target on the Shopify stock to $40 from $44 due to the updated model.
Also, on Friday, Shopify (NYSE:SHOP) stated it would be implementing a new pay structure that would provide agency to workers in wage negotiations.
The approach, dubbed Flex Comp, would allow workers to receive their pay in cash, restricted stock units (RSUs), or options.
In addition, we also abolished the one-year cliff on Shopify stock, the business added, so vesting starts immediately and since life happens, allocation windows will open periodically throughout the year. Your equity will no longer be bound to the quarter in which you began working, giving you more flexibility to make changes based on your current and future requirements.
According to the news release, workers who choose for RSUs or options would get a 5% bonus on any additional equity they choose.
On Tuesday, Shopify stock dropped 6.15%, bringing its total loss for 2022 to more than 76%.
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Author: Shariq Khan
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