3 Things Shopify Inc. (TSX:SHOP) Must Do in 2019

Shopify Inc. (TSX:SHOP)(NYSE:SHOP) stock heads into 2019 way up on the year. Here’s what it needs to do to keep the party going. 

| More on:
You Should Know This

Image source: Getty Images

If you bought Shopify (TSX:SHOP)(NYSE:SHOP) stock at the beginning of 2018, I don’t imagine you’ve got many complaints about how it’s performed, up 65% year to date through December 6.

There’s a six-letter word to describe investors who expected more. It begins with G and ends with a Y. Want a hint? It rhymes with “needy.”

All joking aside, it’s been a fantastic year for the folks at Shopify. Kudos to all those who rode the e-commerce wave to significant gains in 2018. To keep the momentum going, here are three things I believe it needs to do in 2019.

Make money

I know — it’s building scale. Profits aren’t the goal of CEO Tobias Lutke and the rest of the Shopify management team at the moment.

The fourth quarter represents a seasonally strong period for the company, and CEO Tobias Lutke and his team are predicting sales to range between US$315 million and US$325 million compared to the prior quarter’s US$270 million,” wrote Motley Fool’s Demitrios Kalogeropoulos December 6.

“Given its focus on growth today, that result would still translate into an operating loss for the year, but Shopify is happy to book red ink today in exchange for firming up its market position in this massive industry.”

However, to get to $500 and beyond, profitability is a must in my opinion, especially given growth stocks are going to continue to get pounded in 2019.

It’s not that far away from a GAAP profit.

For the first nine months of the year, it lost US$63 million or 9% of its US$729 million in revenue. On a non-GAAP basis, it made US$11 million, up from US$497,000 a year earlier.

For the entire fiscal 2018, Shopify expects an adjusted operating profit of US$8-10 million, 50% higher year over year at the midpoint. The net loss is expected to be $95-97 million, 140% higher than a year earlier.

Is it likely to produce a GAAP profit in 2019? I doubt it, but if it did, the ceiling on Shopify’s stock price would be blown to smithereens.    

Gain global reach

If you look back at some of the media in 2018 regarding Shopify’s growth, you’ll notice a common theme seems to revolve around slowing sales.

A great way to push back against this criticism is to grow the business outside North America. Yes, that costs money, pushing GAAP profitability farther down the road, but if done strategically, I believe Lutke and company can have their cake and eat it too.

On November 26, Shopify announced that it had acquired Tictail, a Swedish e-commerce company that got its start in 2012 and helps businesses sell their products online.

While terms weren’t released, and Tictail appears to have a significant presence in North America, the acquisition provides the company with an additional entry point into the European market.

Acquisitions like these are an excellent way to buy talent and boots on the ground outside North America.

It’s got to continue making strategic acquisitions like Tictail if it wants to keep its share price moving higher.

Bigger customers

One way to get global in a hurry is to help larger businesses who do business around the world be successful online.

“Growing from starter brands to bigger brands has raised our value and we will continue to broaden our reach for those businesses to become a bigger part of our commerce platform,” said Shopify COO Harvey Finklestein recently.

Shopify Plus, which is the company’s platform for larger businesses, generated approximately 24% of its subscription revenue in September, an indication that larger brands are buying into its platform.

Get that number to 50% in 2019, and you can be sure that it will start breaking out its revenues outside North America.

The bottom line of Shopify stock

I don’t expect a good year in the markets in 2019, so Shopify’s not likely to deliver a 65% gain in the year ahead.

That said, if it makes progress on all three of these fronts in 2019, I’d be hard pressed to think of a reason why its stock won’t go higher in the next 12 months.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. 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, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Will Ashworth has no position in any stocks mentioned. Tom Gardner owns shares of Shopify. The Motley Fool owns shares of Shopify and Shopify. Shopify is a recommendation of Stock Advisor Canada.

More on Investing

stock analysis

Buy the Dip: 2 Stocks to Buy Today and Hold for the Next 5 Years

These Canadian stocks are trading at discounted valuations, providing an opportunity for buying the dip.

Read more »

bulb idea thinking

Safety in Size? 2 of the Bluest Blue-Chip Stocks I’d Buy Now

TC Energy (TSX:TRP) and another cash cow have huge dividend yields for safe investors.

Read more »

A cannabis plant grows.
Cannabis Stocks

Can Aurora Cannabis Stock Recover in 2024?

Aurora Cannabis stock is down 99% from all-time highs but remains a high-risk bet, despite its cheap valuation.

Read more »

Question marks in a pile
Dividend Stocks

Where Will Brookfield Infrastructure Partners Stock Be in 5 Years?

Brookfield Infrastructure Partners (TSX:BIP.UN) kicked off 2024 with a bang. Where will it be in five years?

Read more »

TFSA and coins

TFSA Investors: 3 Incredible Stocks for 2024

Are you looking for stocks to buy and hold for years for your TFSA? These three stocks could deliver exceptional…

Read more »

A person looks at data on a screen
Stocks for Beginners

3 Warren Buffett Stocks to Hold Forever

Warren Buffett sold some shares in Apple (NASDAQ:AAPL), and the market had questions.

Read more »

Dividend Stocks

Golden Years Gain: Your CPP Benefits at Age 70

CPP users delaying pension payments until 70 will receive substantial monthly income streams in the golden years.

Read more »

data analytics, chart and graph icons with female hands typing on laptop in background
Dividend Stocks

3 Dividend Stocks You Can Safely Hold for Decades

Top TSX dividend stocks are on sale.

Read more »