The Canadian e-commerce giant Shopify (TSX:SHOP)(NYSE:SHOP) will release its Q4 2020 results on Wednesday morning. The company has seen massive business growth in the last few quarters. The COVID-19-related shutdowns forced most businesses to improve their online presence — increasing the demand for Shopify’s impressive e-commerce services.
Shopify stock’s astonishing about 6,800% returns in the last five years are enough to make a long-term investor a millionaire. But its stock rally might not be over yet, as the company continues to crush analysts’ estimates. Before discussing the upside potential in Shopify stock, let’s take a closer look at analysts’ latest estimates for its fourth-quarter earnings.
Estimates for Shopify’s Q4 earnings
In the last couple of quarters, Shopify’s sales nearly doubled. In Q2 and Q3, the company reported a nearly 97% YoY (year-over-year) increase in its total revenue. Wall Street analysts expect its fourth-quarter revenue to continue rising on a sequential basis to US$915 million — also up 81% YoY. It will translate into an annual sales growth of 81.2% for Shopify in 2020 against 47% in 2019.
Shopify has impressed investors by beating analysts’ consensus estimates by a wide margin in the last few quarters. In the second quarter last year, when Wall Street was estimating its adjusted earnings to be as low as one cent per share, the company surprised everyone by reporting US$1.05 earnings per share. The e-commerce company set another record in the third quarter by posting earnings of US$1.13 per share — 120% higher than the estimates.
Analysts expect Shopify’s Q4 earnings to set another quarterly record with US$1.29 earnings per share. Its net income for the quarter is expected to be around US$165.7 million. It would be more than triple compared to its quarterly earnings of just US$50 million a year ago.
Solid growth will sustain
Shopify’s subscriptions, as well as merchant solutions, saw outstanding growth last year. While the demand for these services might slow down a bit as the pandemic-related restrictions subside, the company could continue to register solid YoY growth in its bottom line in the coming years. Small and medium businesses who subscribed to Shopify’s subscription services amid the pandemic are very likely to stick with it. These recently joined subscription customers could continue driving impressive financial growth for Shopify in the coming quarters — if not in the coming years.
Last year, many small and medium businesses learned about the benefits of having their online presence the hard way. I expect more such businesses to start using Shopify’s e-commerce platform in the coming years — keeping its solid business growth intact.
Shopify didn’t provide any guidance for the fourth quarter due to uncertainties related to various macroeconomic factors and the global pandemic.
Shopify stock will make more millionaires in 2021
If you find Shopify stock overvalued, even after knowing all the positive factors I just discussed, then you should probably look back at the history. Many bears and skeptics have been calling companies like Apple (NASDAQ:AAPL), Tesla, and Shopify overvalued for years. But such criticism didn’t affect the rally in these companies’ share prices.
For example, no one expected Apple to rule the premium smartphone market before launching the first iPhone in 2007. Apple’s iPhone not only came as a big blow to BlackBerry’s smartphone market dominance. Products like iPhone and iPods also became Apple’s primary cash cow in the coming years. Its revenues surpassed the US$100 billion mark in the latest quarter. It was only possible because Apple worked hard to create many great revenue streams in the last couple of decades, targeting a specific niche market.
In my opinion, Shopify might be on a similar path here as its unique e-commerce offerings, and its growing popularity among all sizes of businesses could continue to keep its stock rally going for many years to come. That’s why I expect Shopify stock to yield even much higher returns compared to Apple in the long term.
While it’s difficult to predict how Shopify investors will react to its fourth-quarter earnings tomorrow, its stock is still worth buying on dips. The stock is likely to remain on a path to grow its loyal long-term investors’ savings into millions of dollars in 2021 and beyond.
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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.
David Gardner owns shares of Apple and Tesla. Tom Gardner owns shares of Shopify and Tesla. The Motley Fool owns shares of and recommends Apple, Shopify, Shopify, and Tesla. The Motley Fool recommends BlackBerry and BlackBerry. Fool contributor Jitendra Parashar has no position in any of the stocks mentioned.