Macroeconomic uncertainty has been a headwind for many companies, but Shopify (SHOP 11.70%) And Global Coinbase (CURRENCY 11.15%) they really felt the sting of the bear market. After growing at a turbulent pace during the pandemic, both companies saw momentum fade as high inflation put pressure on discretionary consumer spending.
To better manage costs, Coinbase announced in mid-June that it would cut 18% of its workforce, and Shopify followed suit yesterday by announcing that it would reduce its workforce by 10%. To complicate matters further, US Securities and The Exchange Commission (SEC) is reportedly investigating Coinbase on the grounds that it may have allowed investors to trade unregistered securities, causing shares to plummet by 20% in one day.
These announcements led to significant falls in the share price, accelerating the effects of disappointing financial results and weak indications. Coinbase and Shopify are currently 84% and 80% of their highs, respectively.
Against this backdrop, Ark Invest CEO Cathie Wood on Tuesday sold 1.3 million Coinbase shares and bought 1.8 million Shopify shares. Should investors follow her example?
The case of Shopify
Shopify makes trading easier. Its software unifies physical and digital storefronts such as brick-and-mortar stores, online marketplaces, and direct-to-consumer (DTC) websites, allowing businesses to manage sales from a single platform. Shopify also provides a number of value-added services such as payment processing, discounted shipping, and financing.
In general, DTC business models give companies a greater degree of control over the customer experience, allowing them to build lasting relationships that result in repeat purchases. Shopify’s focus on DTC commerce sets it apart from market players such as Amazonand its broad portfolio of integrations and services has made Shopify the leading ecommerce software provider based on user satisfaction and market presence.
Unfortunately, the surge in inflation weighed heavily on activity and the company lacks the indications in the second quarter yet again. Revenue grew just 16% to $ 1.3 billion, and Shopify posted a non-GAAP (adjusted) loss of $ 0.03 per diluted share, down from a positive $ 0.22 per diluted share in the same quarter. last year.
Many investors are understandably disappointed. Shopify lost the momentum it gained during the pandemic, and the situation could get worse as inflation continues to weigh on consumer spending. However, there are some noteworthy bright spots. First, despite slowing growth, Shopify continued to gain market share in the United States this year, both in offline and online commerce. Second, management is implementing a strong growth strategy that should further differentiate the business over time.
Shopify recently acquired Deliverr to power the building of the Shopify Fulfillment Network (SFN). Deliverr’s artificial intelligence (AI) -based network management software and its ecosystem of partner warehouses, couriers and last-mile suppliers will augment Shopify’s warehouse automation technology. Ultimately, the SFN will enable two-day delivery in the United States, simplifying logistics for merchants and improving the experience for shoppers.
With that in mind, Wood’s decision to double down on Shopify makes sense. And with shares trading at nine times sales – a significant discount from the three-year average of 38 times sales – investors should consider buying this growing stock right now.
The case of Coinbase
Coinbase is a gateway to the burgeoning crypto economy. It provides a range of products and services to retail traders and institutional investors, helping them to buy, sell, spend, store and stake cryptocurrencies. The company also provides cloud services via Coinbase Cloud, helping developers build blockchain applications, staking infrastructures, and other cryptographic solutions.
Coinbase benefits from considerable brand authority, largely due to its reputation for security. The company operates one of the longest-running crypto platforms where customers haven’t lost money due to a security breach, and Coinbase was recently recognized as the safest cryptocurrency exchange by BrokerChooser. Thanks to this competitive advantage, Coinbase is the largest cryptocurrency exchange in the United States based on trading volume.
Unsurprisingly, the company struggled during the current cryptocurrency market crash. Transaction fees currently account for the vast majority of revenue, and those fees are based on the price and quantity of the cryptocurrency you buy or sell. In other words, Coinbase has seen its ability to monetize exchanges sink along with cryptocurrency prices.
In the first quarter, trading volume fell 8%, revenue plummeted 35% to $ 1.2 billion, and the company posted a generally accepted GAAP loss of $ 1.98 per diluted share, down from GAAP profit of $ 3.05 per diluted share in the same quarter last year.
On the bright side, Coinbase recorded revenue from subscriptions and services – think cryptocurrency staking, cold storage rates and cloud services – more than double to $ 152 million in the first quarter. This trend bodes well for the future, indicating Coinbase is becoming less dependent on trading volume.
Coinbase will almost certainly continue to struggle as long as the cryptocurrency market remains suppressed. This may have taken into consideration Woods’ decision to sell, although Coinbase is still the 12th largest position in Ark’s 141 stock portfolio, suggesting it is still bullish.
So, should investors sell (or buy) this stock right now? It depends. I see a bright future for Coinbase because I am bullish on the long-term potential of the cryptocurrency. The cryptocurrency market is currently worth around $ 1 trillion, which is a fraction of the $ 106 trillion global stock market and the $ 124 trillion global bond market. Assuming the figure continues to grow, Coinbase should benefit greatly. That said, cryptocurrency bears should keep their distance from this title.
John Mackey, CEO of Whole Foods Market, a subsidiary of Amazon, is a board member of The Motley Fool. Trevor Jennewine has positions in Amazon and Shopify. The Motley Fool has locations and recommends Amazon, Coinbase Global, Inc., and Shopify. The Motley Fool recommends the following options: long January 2023 $ 1,140 calls on Shopify and short January 2023 $ 1,160 calls on Shopify. The Motley Fool has a disclosure policy.