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Shopify Gains 21.5% in a Month: How Should You Play SHOP Stock?
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Shopify (SHOP - Free Report) shares have returned 21.5% in the past month, outperforming both the Zacks Computer & Technology sector and the Zacks Internet Services industry. Over the same timeframe, the sector and industry have lost 1.2% and 6.4%, respectively.
The outperformance can be attributed to Shopify’s robust second-quarter 2024 results that primarily benefited from an expanding merchant and partner base.
Total revenues jumped 20.7% year over year to $2.05 billion, which beat the Zacks Consensus Estimate by 2.03%. After adjusting for the sale of the logistics business, revenues jumped 25% year over year.
Second-quarter 2024 adjusted earnings of 26 cents per share comfortably beat the Zacks Consensus Estimate by 30% and surged 85.7% year over year.
SHOP Stock to Benefit From Robust Third-Quarter Guidance
Shopify offered solid guidance for the third quarter of 2024. It expects revenue growth in the low-to-mid-twenties on a year-over-year basis. The gross margin is expected to increase 50 bps sequentially.
One-Month Performance
Image Source: Zacks Investment Research
The Zacks Consensus Estimate for third-quarter 2024 revenues is pegged at $2.10 billion, indicating 22.69% year-over-year growth. The consensus for earnings is pegged at 27 cents per share, up 17.4% over the past 30 days and suggests 12.5% growth from the figure reported in the year-ago quarter.
Strong Merchant Base Aids SHOP Stock’s Long-term Prospects
Shopify’s long-term prospects are strong, given its growing merchant base and an expanding partner base.
Shopify’s latest updated editions comprised more than 150 new product updates and features. SHOP has passed $1 trillion in cumulative Gross Merchandise Volume (GMV), while its offline business surpassed $100 billion.
In the second quarter of 2024, offline GMV jumped 27% year over year with new multinational brands like EVEREVE and MAJOURI. These brands are launching online and offline with Shopify, which, on a combined basis, includes more than 130 locations across four regions.
Merchant-friendly tools like Shop Pay, Shopify Collective, Shopify Audiences, Shopify Capital and Shop Cash offers are helping it win new merchants regularly in a challenging economic environment. Shopify’s platform is widely used by small and medium businesses that are suffering from persistent inflation.
In second-quarter 2024, Shop Pay processed $16 billion in GMV and accounted for 39% of SHOP’s Gross Payments volume (GPV). In the second quarter, GPV grew to $41.1 billion, constituting 61% of GMV processed.
Shopify recorded the highest-ever B2B GMV month with a 140% year-over-year increase fueled by the growth of Plus merchants in the second quarter.
Integration of Shop Pay Installments into the point-of-sale terminal and general availability of Pro makes it easier for merchants to discover and engage their customers.
Shopify plans to improve the operating efficiency of its point-of-sale offering by introducing features, including a new remote smart grid layout editor, omnichannel return rules and the ability to stack multiple discounts at checkout, making it easier for merchants to customize their promotional strategies.
Expanding Partner Base: A Key Catalyst for SHOP Stock
An expanding partner base that includes TikTok, Snap, Pinterest, Criteo, IBM, Cognizant, Alphabet (GOOGL - Free Report) , Amazon (AMZN - Free Report) , Target (TGT - Free Report) , Manhattan Associates, COACH and Adyen is expected to expand its merchant base further.
Alphabet division YouTube recently expanded its partnership with Shopify to bring more brands for its YouTube Shopping affiliate program.
Shopify’s strategy to focus on the core business by divesting the logistics business has been a noteworthy development. Its partnership with Amazon allows Shopify merchants to use the former’s massive fulfillment network. The relationship with Target also strengthens SHOP’s footprint.
Shopify’s expanding international footprint is noteworthy. In the second quarter, it launched a point-of-sale terminal in eight additional countries, contributing to an impressive 2.4 times increase in GMV.
Shopify Stock is Overvalued
The Value Score of D suggests a stretched valuation for Shopify at this moment, which makes it a risky bet for risk-averse investors.
SHOP stock is trading at a premium with a forward 12-month Price/Sales of 10.10X compared with the Zacks Internet Services industry’s 5.44X.
Price/Sales Ratio (F12M)
Image Source: Zacks Investment Research
However, the technical indicator is bullish for Shopify as the shares trade above the 50-day moving average, which indicates robust upward momentum.
SHOP Shares Trade Above 50-Day SMA
Image Source: Zacks Investment Research
Conclusion
Shopify is benefiting from strong growth in its merchant base. The expansion of back-office merchant solutions to more countries is strengthening SHOP’s international footprint. Although the current valuation is stretched, the long-term growth prospects are hard to ignore.
However, challenging macroeconomic conditions and persistent inflation are a concern.
Image: Bigstock
Shopify Gains 21.5% in a Month: How Should You Play SHOP Stock?
Shopify (SHOP - Free Report) shares have returned 21.5% in the past month, outperforming both the Zacks Computer & Technology sector and the Zacks Internet Services industry. Over the same timeframe, the sector and industry have lost 1.2% and 6.4%, respectively.
The outperformance can be attributed to Shopify’s robust second-quarter 2024 results that primarily benefited from an expanding merchant and partner base.
Total revenues jumped 20.7% year over year to $2.05 billion, which beat the Zacks Consensus Estimate by 2.03%. After adjusting for the sale of the logistics business, revenues jumped 25% year over year.
Second-quarter 2024 adjusted earnings of 26 cents per share comfortably beat the Zacks Consensus Estimate by 30% and surged 85.7% year over year.
SHOP Stock to Benefit From Robust Third-Quarter Guidance
Shopify offered solid guidance for the third quarter of 2024. It expects revenue growth in the low-to-mid-twenties on a year-over-year basis. The gross margin is expected to increase 50 bps sequentially.
One-Month Performance
Image Source: Zacks Investment Research
The Zacks Consensus Estimate for third-quarter 2024 revenues is pegged at $2.10 billion, indicating 22.69% year-over-year growth. The consensus for earnings is pegged at 27 cents per share, up 17.4% over the past 30 days and suggests 12.5% growth from the figure reported in the year-ago quarter.
Shopify Inc. Price, Consensus and EPS Surprise
Shopify Inc. price-consensus-eps-surprise-chart | Shopify Inc. Quote
Strong Merchant Base Aids SHOP Stock’s Long-term Prospects
Shopify’s long-term prospects are strong, given its growing merchant base and an expanding partner base.
Shopify’s latest updated editions comprised more than 150 new product updates and features. SHOP has passed $1 trillion in cumulative Gross Merchandise Volume (GMV), while its offline business surpassed $100 billion.
In the second quarter of 2024, offline GMV jumped 27% year over year with new multinational brands like EVEREVE and MAJOURI. These brands are launching online and offline with Shopify, which, on a combined basis, includes more than 130 locations across four regions.
Merchant-friendly tools like Shop Pay, Shopify Collective, Shopify Audiences, Shopify Capital and Shop Cash offers are helping it win new merchants regularly in a challenging economic environment. Shopify’s platform is widely used by small and medium businesses that are suffering from persistent inflation.
In second-quarter 2024, Shop Pay processed $16 billion in GMV and accounted for 39% of SHOP’s Gross Payments volume (GPV). In the second quarter, GPV grew to $41.1 billion, constituting 61% of GMV processed.
Shopify recorded the highest-ever B2B GMV month with a 140% year-over-year increase fueled by the growth of Plus merchants in the second quarter.
Integration of Shop Pay Installments into the point-of-sale terminal and general availability of Pro makes it easier for merchants to discover and engage their customers.
Shopify plans to improve the operating efficiency of its point-of-sale offering by introducing features, including a new remote smart grid layout editor, omnichannel return rules and the ability to stack multiple discounts at checkout, making it easier for merchants to customize their promotional strategies.
Expanding Partner Base: A Key Catalyst for SHOP Stock
An expanding partner base that includes TikTok, Snap, Pinterest, Criteo, IBM, Cognizant, Alphabet (GOOGL - Free Report) , Amazon (AMZN - Free Report) , Target (TGT - Free Report) , Manhattan Associates, COACH and Adyen is expected to expand its merchant base further.
Alphabet division YouTube recently expanded its partnership with Shopify to bring more brands for its YouTube Shopping affiliate program.
Shopify’s strategy to focus on the core business by divesting the logistics business has been a noteworthy development. Its partnership with Amazon allows Shopify merchants to use the former’s massive fulfillment network. The relationship with Target also strengthens SHOP’s footprint.
Shopify’s expanding international footprint is noteworthy. In the second quarter, it launched a point-of-sale terminal in eight additional countries, contributing to an impressive 2.4 times increase in GMV.
Shopify Stock is Overvalued
The Value Score of D suggests a stretched valuation for Shopify at this moment, which makes it a risky bet for risk-averse investors.
SHOP stock is trading at a premium with a forward 12-month Price/Sales of 10.10X compared with the Zacks Internet Services industry’s 5.44X.
Price/Sales Ratio (F12M)
Image Source: Zacks Investment Research
However, the technical indicator is bullish for Shopify as the shares trade above the 50-day moving average, which indicates robust upward momentum.
SHOP Shares Trade Above 50-Day SMA
Image Source: Zacks Investment Research
Conclusion
Shopify is benefiting from strong growth in its merchant base. The expansion of back-office merchant solutions to more countries is strengthening SHOP’s international footprint. Although the current valuation is stretched, the long-term growth prospects are hard to ignore.
However, challenging macroeconomic conditions and persistent inflation are a concern.
Shopify currently has a Zacks Rank #3 (Hold), suggesting that it may be wise to wait for a more favorable entry point in the stock. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.