Shopify (NYSE:SHOP) is one of the most talked-about e-commerce stocks in recent years, and despite the broad price declines among growth stocks over the past several months, the company is as strong a long-term investment as ever. In this segment of Backstage Pass, recorded on Jan. 19, Fool contributors Rachel Warren, Trevor Jennewine, Danny Vena, and Jose Najarro discuss some recent exciting news about the company.
Rachel Warren: CNBC reported, “Shopify has partnered with e-commerce giant JD.com to help U.S. merchants sell their goods in China. JD said it will open an accelerated channel for brands on Shopify to begin selling in China, and will handle price conversion and logistics from the U.S. to China.”
This is obviously a really big deal for Shopify, a huge part of its move to expand within China, which is the world’s largest e-commerce market. It’s also a big deal for JD.com, as it helps it to strengthen this partnership with U.S. companies — or a Canadian company like Shopify. Here’s my question: Do you think this is a wise or unwise move for Shopify, particularly given the strained relationship between the U.S. and China at the moment? Shopify is based in Canada, but most of its sellers are located in the U.S.
Interestingly, even though this is a really fascinating strategic move in the sense that this really strengthens Shopify’s presence in a $1 trillion-some market, shares of Shopify dipped to more than 4% yesterday after the news. Trevor, what are your thoughts on this deal?
Trevor Jennewine: As a Shopify shareholder, I really like it. I don’t think the stock’s move yesterday had anything to do with [it]. I think growth stocks are just getting hammered. That’s overshadowing everything. But like you mentioned, China is the largest e-commerce market in the world.
I think this makes a lot of sense for the company. In the last year, Shopify has either partnered with or expanded partnerships with Google, Facebook, Instagram, Spotify, Pinterest, Walmart, TikTok.
Part of its value proposition is having that one platform that unifies sales across websites, social platforms, online marketplaces — pulling all of those front ends into a single back-end platform. I think this just creates incremental value for the businesses that use Shopify’s technology. So I like the move.
Danny Vena: People don’t think about JD in terms of context, I think, a lot of times, particularly U.S. investors. But JD.com is China’s largest online retailer. People think Alibaba, but Alibaba’s a reseller.
JD.com is the largest online retailer. It’s the country’s biggest overall retailer, and it’s the country’s biggest internet company in terms of revenue. If you look at how big that market is, China has, I think, more than $2 trillion worth of e-commerce, which is a little bit more than half of the total e-commerce volume on the planet.
So, big opportunity, and I think you take JD.com’s e-commerce dominance in China, you marry that with Shopify — it’s already got experience with 1.7 million retailers in the rest of the world. I think that is as close to a no-brainer as there is.
When it comes to the issue of the strained relationships between the U.S. and China, this is something that’s been going on for decades. I don’t think it’s necessarily going to be a problem. There’s always that possibility. If you look at the fact that Fastly, for instance, is still trying to recover from the TikTok debacle, which was a direct result of saber-rattling between Washington, D.C., and Beijing. It’s always a possibility. But I think for Shopify, this is a really good move.
Warren: Yeah. Jose?
Vena: Shopify is one of my three largest positions.
Warren: Yeah, I’m a shareholder too. I’m not unhappy, we’ll put it that way. [laughs] Jose, what are your thoughts?
Jose Najarro: Very similar to everybody here. I am a shareholder of Shopify, too. I think this is a smart move for its global domination move. I do want to say JD, just like Danny mentioned, is a very strong company. I used to own it in my portfolio. I don’t have it anymore.
But what I would raise, Rachel, is it was one of the most innovative companies I’ve seen. I believe they have a few distribution centers in China that are almost fully autonomous, and I think that’s pretty impressive.
Then, Shopify partnering up with JD, I think it’s a great move. I’m more interested more as for data points: How many buyers from China are going to purchase from U.S. sellers? And I want to see how sellers react or review these transactions.
Is it an easy transaction or are they going to start…? I’m pretty sure Shopify will have the option to turn it off or on if you don’t want to sell to certain countries. I’m more curious how sellers are going to review this new solution.
Warren: Great points from all of you guys. I had to think about this a little bit. I do think it’s a great business move for Shopify. As mentioned, I also own this stock. I think you’re tapping into this immense e-commerce market.
And jumping off of that, there was this interesting report from JP Morgan, and this was “2020 E-Commerce Payments Trends Report in China.” I couldn’t find one for 2021 yet, so I’m assuming they haven’t released that yet. But there were some really key points in his report that I think shed a lot of light on why this was such a good strategic move for a company like Shopify. One of the things that report says was that “China’s e-commerce revenues have raced ahead of the rest of the world, yet there are still hundreds of millions of citizens who are yet to spend online.”
The report has a double-digit growth prediction for 2023 for its e-commerce market. It’s saying “the country represents a huge opportunity for ambitious e-commerce merchants.” The report also noted that “China is the world’s biggest e-commerce market generating $1.7 trillion in sales a year. This is despite the fact that the majority of the population, 56%, are yet to make their first online purchase.” Like Danny was saying, there is a lot of untapped potential within the e-commerce space in China.
What’s interesting is there’s a lot of different key sales dates throughout the year there — for example, Chinese New Year, which is coming up here. But there is a really steady demand for e-commerce solutions there, and yet there is this huge part of the market that has yet to be reached.
That spells a lot of opportunity, not only for a company like JD.com, but also for Shopify. So I think this will be something that’s really interesting to watch. One of the things that’s very common in China is selling goods via mobile and livestream. That’s been a very effective means that a lot of companies have used to market various goods. As this report says, “China is a mobile-first country.” As a matter of fact, “Sales via mobile devices take a 60% share of the overall e-commerce market, so merchant sites must be smartphone ready and available as an app.” I think that this is a really good move, that it’s partnering with such an established e-commerce presence there — a company that really understands what are the things that consumers are looking for, what are the most effective means of marketing to that consumer base. I’m interested to see what growth this lends to Shopify in the years ahead. But overall, bottom line, I think it is a good move.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.