Shopify (SHOP) and Shutterstock (SSTK): Buy, Hold, or Sell?

The internet industry is predicted to grow steadily as a result of increased digitization and government measures to make the internet available to all. However, I think it could be wise to wait for a better entry point in Shopify Inc. (SHOP) and Shutterstock, Inc. (SSTK).

The National Telecommunications and Information Administration (NTIA) of the Department of Commerce announced the availability of roughly $1 billion in funding to improve Internet access and adoption on tribal lands. This initiative is part of President Biden’s Investing in America strategy and his economic plan, Bidenomics, to develop the economy from the bottom up and middle out while lowering costs for more families.

Moreover, the global wireless internet services market is expected to grow at a 7% CAGR until 2027 to reach $921.97 billion.

Investors’ interest in internet stocks is evident from the First Trust Dow Jones Internet Index Fund’s (FDN) 24.9% returns over the past nine months.

However, the challenge in internet service industry is the constant need to upgrade infrastructure and invest in new technologies to accommodate the increasing demand for faster and more reliable internet connections. Furthermore, as cyber threats evolve and grow more sophisticated, ensuring data privacy and cybersecurity has emerged as a critical concern.

Let’s delve deeper into the fundamentals of the featured stocks.

Shopify Inc. (SHOP)

Headquartered in Ottawa, Canada, SHOP, an e-commerce company, provides a commerce platform and services in Canada, the United States, Europe, the Middle East, Africa, the Asia Pacific, and Latin America. The company’s platform enables merchants to display, manage, market, and sell products through various sales channels.

SHOP’s forward non-GAAP PEG multiple of 0.79 is 54.7% lower than the industry average of 1.75, while its forward EV/Sales multiple of 9.69 is 250.7% higher than the industry average of 2.76.

For the fiscal second quarter that ended June 30, 2023, SHOP’s revenues increased 30.8% year-over-year to $1.69 billion, while its gross profit came in at $835 million, up 27.3% from the prior-year quarter.

However, its net loss stood at $1.31 billion, up 8.9% year-over-year, while its loss per share increased 7.4% from the prior-year quarter to $1.02.

The consensus revenue estimate of $6.94 billion for the year ending December 2023 represents a 23.9% increase year-over-year. Its EPS is expected to increase significantly year-over-year to $0.52 for the same period. It has surpassed EPS estimate in each of the trailing four quarters.

The stock has gained 42.7% over the past year to close the last trading session at $53.22. However, the stock has lost 22.5% over past month.

SHOP’s POWR Ratings reflect uncertainty. The stock has an overall rating of C, equating to a Neutral in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.

SHOP also has a C grade for Momentum and Quality. It is ranked #21 out of 29 stocks in the Internet – Services industry. Click here for the additional POWR Ratings for Growth, Sentiment, Stability and Value for SHOP.

Shutterstock, Inc. (SSTK)

SSTK is a technology company that offers top-notch content and innovative workflow solutions. Its image services include photos, vectors, and illustrations. It also provides footage and music services featuring tracks and sound effects. The company caters to corporate professionals, media companies, and individual creators.

SSTK’s forward non-GAAP P/E multiple of 0.50 is 65.1% lower than the industry average of 1.44, while its forward Price/Sales multiple of 1.77 is 50% higher than the industry average of 1.18.

During the fiscal second quarter that ended June 30, 2023, SSTK’s revenue increased marginally year-over-year to $208.84 million. Its net income rose 63.4% from the year-ago value to $50 million, while its EPS grew 158.5% year-over-year to $1.37.

However, its income from operations at $8.72 million, down 65.7% year-over-year, while its total operating expenses increased 10.3% from the prior-year quarter to $200.13 million.

Street expects SSTK’s revenue to increase 3.7% year-over-year to $858.39 million for the year ending December 2023. Its EPS is expected to grow 8.2% year-over-year to $4.19 for the same period. It surpassed EPS estimates in all four trailing quarters. Over the past year, the stock has lost 32.1% to close the last trading session at $41.65.

SSTK’s has an overall C rating, equating to a Neutral in our POWR Ratings system. It has a C grade for Stability, Sentiment, and Momentum. It is ranked #6 in the same industry.

Beyond what is stated above, we’ve also rated SSTK for Value, Growth, and Quality. Get all SSTK ratings here.

43 Year Investment Pro Shares Top Picks

Steve Reitmeister is best known for his timely market outlooks & unique trading plans to stay on the right side of the market action. Click below to get his latest insights…

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SHOP shares were trading at $52.08 per share on Friday morning, down $1.14 (-2.14%). Year-to-date, SHOP has gained 50.04%, versus a 14.69% rise in the benchmark S&P 500 index during the same period.

Rashmi is passionate about capital markets, wealth management, and financial regulatory issues, which led her to pursue a career as an investment analyst. With a master's degree in commerce, she aspires to make complex financial matters understandable for individual investors and help them make appropriate investment decisions.

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