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Shopify Declines 12.5% Year to Date: Buy, Sell or Hold SHOP Shares?
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Shopify (SHOP - Free Report) shares have lost 12.5% year to date, underperforming both the Zacks Computer & Technology sector and the Zacks Internet Services industry. Over the same timeframe, the sector and industry have gained 13.6% and 4.7%, respectively.
The underperformance in SHOP’s shares can be attributed to challenging macroeconomic conditions that have negatively impacted small and medium businesses, which form its major merchant base. This cohort has been suffering from persistent inflation.
Nevertheless, Shopify’s expanding merchant base is noteworthy. This has been driving its Gross Merchandise Volume (GMV) which surpassed $1 trillion cumulatively. Offline business surpassed $100 billion in cumulative GMV since the launch of Shopify POS.
So, is this expanding GMV bodes well for Shopify investors or are the near-term challenges too hot to handle for them?
YTD Performance Chart
Image Source: Zacks Investment Research
Let’s analyze to find out.
SHOP Stock to Rebound on Expanding Clientele
Shopify’s expanding clientele is a key catalyst. The growing number of multinational brands like EVEREVE and MAJOURI on its platform is noteworthy. 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.
In second-quarter 2024, Shop Pay processed $16 billion in GMV and accounted for 39% of SHOP’s Gross Payments volume (GPV). In the reported 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.
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 to Aid 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.
SHOP Stock to Ride on Robust Q3 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.
The Zacks Consensus Estimate for third-quarter 2024 revenues is pegged at $2.11 billion, indicating 22.89% year-over-year growth.
The consensus mark for earnings is pegged at 27 cents per share, unchanged over the past 30 days and suggests 12.5% growth from the figure reported in the year-ago quarter.
The Value Score of D suggests a stretched valuation for Shopify at this moment, which makes it a risky bet for investors despite promising growth prospects.
SHOP stock is trading at a premium with a forward 12-month Price/Sales of 8.97X compared with the industry’s 4.87X.
Price/Sales Ratio (F12M)
Image Source: Zacks Investment Research
Conclusion
Shopify is benefiting from strong growth in its merchant base as well as expanding its international footprint. Hence, the long-term growth prospects are hard to ignore.
However, challenging macroeconomic conditions and persistent inflation are a near-term concern, along with a stretched valuation.
Image: Bigstock
Shopify Declines 12.5% Year to Date: Buy, Sell or Hold SHOP Shares?
Shopify (SHOP - Free Report) shares have lost 12.5% year to date, underperforming both the Zacks Computer & Technology sector and the Zacks Internet Services industry. Over the same timeframe, the sector and industry have gained 13.6% and 4.7%, respectively.
The underperformance in SHOP’s shares can be attributed to challenging macroeconomic conditions that have negatively impacted small and medium businesses, which form its major merchant base. This cohort has been suffering from persistent inflation.
Nevertheless, Shopify’s expanding merchant base is noteworthy. This has been driving its Gross Merchandise Volume (GMV) which surpassed $1 trillion cumulatively. Offline business surpassed $100 billion in cumulative GMV since the launch of Shopify POS.
So, is this expanding GMV bodes well for Shopify investors or are the near-term challenges too hot to handle for them?
YTD Performance Chart
Image Source: Zacks Investment Research
Let’s analyze to find out.
SHOP Stock to Rebound on Expanding Clientele
Shopify’s expanding clientele is a key catalyst. The growing number of multinational brands like EVEREVE and MAJOURI on its platform is noteworthy. 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.
In second-quarter 2024, Shop Pay processed $16 billion in GMV and accounted for 39% of SHOP’s Gross Payments volume (GPV). In the reported 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.
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 to Aid 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.
SHOP Stock to Ride on Robust Q3 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.
The Zacks Consensus Estimate for third-quarter 2024 revenues is pegged at $2.11 billion, indicating 22.89% year-over-year growth.
The consensus mark for earnings is pegged at 27 cents per share, unchanged over the past 30 days and suggests 12.5% growth from the figure reported in the year-ago quarter.
Shopify Inc. Price and Consensus
Shopify Inc. price-consensus-chart | Shopify Inc. Quote
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 investors despite promising growth prospects.
SHOP stock is trading at a premium with a forward 12-month Price/Sales of 8.97X compared with the industry’s 4.87X.
Price/Sales Ratio (F12M)
Image Source: Zacks Investment Research
Conclusion
Shopify is benefiting from strong growth in its merchant base as well as expanding its international footprint. Hence, the long-term growth prospects are hard to ignore.
However, challenging macroeconomic conditions and persistent inflation are a near-term concern, along with a stretched valuation.
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.