Holiday is near, will Shopify Beat expectation?

Mickey082024
11-11

$Shopify(SHOP)$

Shopify's stock is currently trading around $85.55. Recent Performance the stock has seen a strong performance recently, rising by over 11% in the past week. Analysts expect Shopify's upcoming earnings report to show continued growth, with revenue estimates around $2.93 billion for Q3 2024. As for the Valuation Shopify has a forward P/E ratio of 78.92, which is higher than the sector median of 25. Most analysts have a positive outlook, with price targets ranging from $79.45 to $120.09.

Shopify constant currency revenue is expected to have increased by 23%, maintaining a consistent growth rate as seen in the previous four quarters. The adjusted operating margin is anticipated to have remained stable, as Shopify invests heavily in marketing to attract enterprise customers. The company's outlook will be crucial for assessing consumer spending during the holiday season.

Recap for Q2 2024 SHOP Earnings

Shopify's strong performance in Q2 2024 reflects its continued growth and resilience in the e-commerce market. Shopify reported revenue of $2.05 billion, a 21% year-over-year increase. The company posted an adjusted EPS of $0.26, beating analyst consensus estimates of $0.20. Gross Merchandise Volume (GMV) increased by 22% year-over-year to $67.2 billion. Merchant Solutions Revenue grew by 19% year-over-year to $1.5 billion. Subscription Solutions Revenue saw a 27% increase to $563 million. Free cash flow was $333 million, up from $97 million in the same quarter last year. The gross margin for the quarter was 51.1%, compared to 49.3% a year ago.

Shopify’s gross profit also saw substantial growth, increasing from $835 million in Q2 2023 to $1.05 billion in Q2 2024. The company’s overall expenses decreased significantly, helped by a reduction in R&D costs and no major write-downs like the ones experienced in 2023 related to its logistics divestitures. Additionally, Shopify emphasized its focus on improving gross merchandise volume (GMV), which contributed to its financial gains amidst challenging economic conditions​

Since the Shopify shares fall to $24 in 2022 the stock have relatively large price hike in the last 24 month over 3X. The recent share price gains has brought the company back closer to its 10 month peak. As a large-cap stock with wide coverage by analysts, we could assume any recent changes in the company's outlook is already priced into the stock.

Let's take a look at Shop's outlook and value based on the most recent financial data to see if the opportunity still exists.

Opportunities

International Expansion: Shopify operates in 175 countries but still generates the majority of its sales in North America. Expanding its international operations and providing localized tools for its global merchant base can drive significant growth1.

Shopify Fulfillment Network: Enhancing its fulfillment network can improve customer experience and increase sales by offering faster and more reliable shipping options.

Product Development: Introducing new products or significantly improving existing ones to meet evolving customer needs can stimulate growth.

Market Penetration: Intensifying efforts in existing markets with current products to increase market share.

Market Expansion: Entering new markets with existing products, targeting new geographical areas, demographics, or segments within a market.

Strategic Partnerships: Forming partnerships, acquisitions, or mergers to rapidly expand its customer base and market presence.

Challenges

Market Competition: Intense competition from other e-commerce platforms can impact Shopify's market share and growth.

Economic Conditions: Economic downturns or recessions can affect consumer spending and, consequently, Shopify's revenue.

Regulatory Changes: Changes in regulations, especially related to data privacy and e-commerce, can impact Shopify's operations.

Cybersecurity Threats: Data breaches and cyberattacks pose significant risks, especially given the increasing sophistication of cyber threats.

Supply Chain Disruptions: Issues in the supply chain can affect inventory management and fulfillment, impacting customer satisfaction.

Operational Risks: Challenges related to day-to-day operations, such as system outages or errors, can affect Shopify's performance.

Reputation Risk: Negative publicity or customer dissatisfaction can harm Shopify's brand and customer trust.

Economic downturns can impact consumer spending and Shopify's revenue. Competitors like Amazon and other e-commerce platforms pose a significant threat. Changes in regulations, especially related to data privacy, can affect operations. Data breaches and cyberattacks are a constant risk. The weakness in the company is expensive based on P/E ratio and estimated fair value. Revenue is forecast to grow slower than 20% per year.

Conclusion

Shopify remains a strong player in the e-commerce space with solid growth prospects, driven by new product developments, expanding partnerships, and international expansion. However, its stock valuation, competition, and market conditions should be carefully monitored. Investors typically see Shopify as a long-term growth stock rather than a value or income stock, given its strategic focus on growth over dividends or short-term profitability.

Technical Analysis: Some technical indicators suggest a Bull trend, with Shop testing a slightly rising trendline. If it breaks below this trendline, the stock could Rise further. Particularly with the holiday season around the corner.

Analyst Ratings: Some analysts remain optimistic with HOLD, SHOP average Analyst price target in the past 3 months is $79.08

Shopify and Sea Beat and Jump! Time to Soar Tonight?
Shopify’s stock rose 13% in premarket trading after it beat revenue estimates, driven by AI-powered tools attracting more merchants. Sea, the owner of Shopee, also exceeded revenue expectations with a 30.8% increase to $4.33 billion in Q3, boosted by strong growth in e-commerce, entertainment, and financial services. ------------------ Have you ever bought goods from Shopify or Sea's Shopee? With two giants' earnings beat, will you trade them? What's your target price?
Disclaimer: Investing carries risk. This is not financial advice. The above content should not be regarded as an offer, recommendation, or solicitation on acquiring or disposing of any financial products, any associated discussions, comments, or posts by author or other users should not be considered as such either. It is solely for general information purpose only, which does not consider your own investment objectives, financial situations or needs. TTM assumes no responsibility or warranty for the accuracy and completeness of the information, investors should do their own research and may seek professional advice before investing.

Comments

  • SiongZ
    11-11
    SiongZ
    Shopify's valuation is a bit concerning, but I share your optimism.
  • Ahmbis
    11-12
    Ahmbis
    Fantastic insightful analysis. Thank you.
  • ELI_59
    11-12
    ELI_59

    Thanks for sharing 😊

  • KSR
    11-12
    KSR
    👍
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