Shopify (NYSE:SHOP) SHOP was one was of the stars as the market surged off its March lows last year, alongside Zoom ZM and others that benefitted from the coronavirus conditions. The stock has soared nearly 200% since then, but a majority of these gains came early on.
The e-commerce firm has underperformed the tech sector and the S&P 500 during the last six months, up just around 6%, as we get closer to its Q4 release that’s due out on February 17.
Still the Early Days…
Digital commerce has been growing for years and the pandemic helped spur broader adoption among businesses that might have been holding out. The massive expansion of e-commerce is set to benefit FedEx FDX and help Amazon AMZN gobble up more market share. And despite everyone from Target TGT to mom-and-pop shops rolling out more e-commerce options, it’s still the early days.
E-commerce accounted for roughly 14% of total U.S. retail sales in the third quarter, down from a record 16% in Q2 FY20. It’s worth pointing out that this figure was up big from the year-ago period’s 11%. However, given all the buzz and the absolute perfect conditions to dominate, it still made up far less than 20% of total domestic retail sales. This gives digital commerce-focused companies plenty of runway.
Shopify has been helping companies adapt to the future of retail for over a decade and it claims to power more than one million e-commerce businesses. The firm helps businesses build, maintain, and grow their e-commerce presence.
SHOP makes money from recurring subscription fees and add-ons. The company currently offers different tiers: one that is aimed at entrepreneurs, as well as small and medium businesses, with another geared to high volume merchants and big businesses.
The Canadian company’s most basic package starts with a monthly fee of $29 for sellers and a 2.9% transaction fee. Shopify has also continued to partner with heavyweights such as Walmart (NYSE:WMT) WMT and Facebook (NASDAQ:FB) FB. And the firm was on a stellar run long before the coronavirus.
For instance, SHOP surged from under $30 a share in 2016 to over $500 before the coronavirus crash. Shopify’s sales growth helped support the move, with 2019’s nearly 50% revenue growth its slowest since it went public in 2015.
Outlook…
SHOP posted 97% revenue growth in both Q2 and Q3, with monthly recurring revenue up 47% last quarter. The company also said that Black Friday/Cyber Monday weekend sales grew nearly 80% in 2020. With this as a backdrop, Zacks estimates call for Shopify’s fourth quarter revenue to jump 79% to reach $903.8 million, which is projected to lift its adjusted EPS figure by 188% to $1.24 a share.
Meanwhile, SHOP’s FY20 revenue is projected to climb another 81% to reach $2.85 billion, with its EPS expected to skyrocket from $0.30 all the way to $3.74 a share. The company’s sales growth would beat the 73%, 59%, and 47% sales expansion SHOP posted in the last three years, respectively.
Bottom Line
Shopify’s 2021 revenue is then projected to climb another 30% or $860 million above our 2020 estimate. On top of that, SHOP has consistently crushed our earnings estimates, including some insanely large beats during the pandemic. And the company’s broader earnings revisions help it land a Zacks Rank #1 (Strong Buy) right now.
Shopify is set to release its fourth quarter results on February 17, and some of the early results from the likes of Apple AAPL, Microsoft MSFT, and other big names in tech could spell good things to come for the e-commerce firm.
Plus, at $1,120 a share SHOP sits about 12% off its 52-week highs, which might make it more enticing to some. The stock does still trade at a solid premium compared to Amazon and Etsy (NASDAQ:ETSY) ETSY. But growth-minded investors with longer-term outlooks might want to consider Shopify since businesses, big and small, must grow online in order to thrive.
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