October is a huge month for Shopify (TSX:SHOP)(NYSE:SHOP), as it marks the beginning of holiday season sales. This week, many U.S. retailers are having their big sales: Amazon’s Prime Day, Target’s Deals Day on October 13-14, and Walmart’s Big Save Event on October 11-15. These big sale events are important for these retailers, as they earn around 8-10% of their fourth-quarter revenue in these two to three days. Hence, their stocks have surged 2% to 8% in the last three trading days ahead of the event.
You must be wondering what Shopify has to do with these big sale events. This year’s big sale event is different, as most of the sales will take place online on an e-commerce platform. Moreover, the retailers have increased their online services such as contactless payment, curbside pickup, and inventory checks, which will enhance a consumer’s shopping experience. Shopify provides retailers these online services.
Shopify’s seasonal sales
The fourth quarter is seasonally strong for Shopify, as holiday season sales increase transaction volumes. The company earns a commission of around 1.5% on these transactions. The COVID-19 pandemic brought Black Friday-like transactions to the Shopify platform in the second quarter, which almost doubled its revenue to $714 million. Most of this revenue (72.5%) came from merchant solutions as its gross merchandise volume soared 118% year over year (YoY).
Even though retail shops have started to reopen, the online transaction volumes are still high. The pandemic-induced volumes plus the big sale volumes plus the early holiday shopping could see Shopify witness another April-level traffic this month. Even if Shopify retailers are not having big sales, Walmart is. And Shopify has partnered with Walmart, where its retailers can display their products on Walmart’s website.
Shopify’s upcoming third-quarter earnings
Shopify will release its third-quarter earnings on October 29. It did not provide any guidance for the third quarter amid the pandemic volatility, but it’s revenue is likely to double this quarter as well.
During the second-quarter earnings, the stock surged 13.5% a week ahead of the earnings release. The stock has already surged 7% this month and could reach its all-time high of $1,502, representing upside of 3.2%.
Moreover, Shopify is looking to scale its operations with the help of a fulfillment network that connects retailers to warehouses. Amazon’s fulfillment network made same-day order delivery a reality. Shopify aims to achieve the same.
Moreover, Shopify is looking to monetize social media and other consumer platforms by converting them into shopping sites. It has partnered with Facebook, which enables its retailers to sell their products on Facebook and Instagram. It is now beta testing with Google to allow its retailers to sell on the video-sharing platform YouTube.
Should you buy Shopify now?
Should buy Shopify at its current price of over $1,450, which is 85 times its sales per share? I would suggest you look for other stocks, as Shopify stock is priced for the next 10 years. Even though the company has strong growth potential, its stock’s high valuation has limited its upside. If you already own the stock, hold it, as it could rise in the mid-single-digits towards the end of the month.
A cheaper alternative to Shopify is Lightspeed POS (TSX:LSPD)(NYSE:LSPD), which is growing on the back of the e-commerce wave. Lightspeed provides omnichannel solutions that provide an integrated online and physical store shopping experience. Its platform helps retailers offer curbside pickup, contactless payments, appointment booking, online marketing, and more.
Lightspeed revenue surged 51% YoY in the second quarter. Its revenue-growth rate could accelerate in the post-pandemic world, as it extends its platforms beyond retailers to include restaurants and golf clubs. Its customer base is broader than Shopify’s, and it has just started.
Lightspeed stock has surged more than 165% since April and is currently trading at 39 times its sales per share. Compared to Shopify, it’s a slightly cheaper stock that has the potential to become the next Shopify. Lightspeed is a stock that you can get under $50, and it can double your money in two to three years.
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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to its CEO, Mark Zuckerberg, is a member of The Motley Fool's board of directors. Fool contributor Puja Tayal has no position in any of the stocks mentioned. David Gardner owns shares of Alphabet (A shares), Alphabet (C shares), Amazon, and Facebook. Tom Gardner owns shares of Alphabet (A shares), Alphabet (C shares), Facebook, and Shopify. The Motley Fool owns shares of and recommends Alphabet (A shares), Alphabet (C shares), Amazon, Facebook, Shopify, and Shopify. The Motley Fool owns shares of Lightspeed POS Inc and recommends the following options: long January 2022 $1920 calls on Amazon and short January 2022 $1940 calls on Amazon.