Shopify (TSX:SHOP) stock has been one of the best-performing on the Toronto Stock Exchange since its initial public offering in 2015. Although the stock performed poorly over the last 12 months, losing 70% of its value at one point, it has, nevertheless, outperformed over its eight years as a public company.
The question at this point is, “what’s next?” In a few short years, SHOP went from a small startup to a major company doing over $4 billion per year in revenue. It has been a wild ride, and it’s only natural to wonder what’s next for Canada’s most successful new technology company.
In this article, I will explore what’s next for Shopify and whether or not investors should consider taking a position in its stock.
Earnings coming up next month
The most obvious upcoming development for Shopify is its next earnings release. On May 4, Shopify will release its earnings for the first quarter of 2023 — a release that will reveal important information like
- Important operational information (e.g., new vendors); and
- Guidance for the next quarter from Tobias Lütke and his executive team.
It will be a closely watched earnings release. Shopify’s previous release was mixed, showing revenue growing 26%, which was an improvement from the quarter before, but it also showed widening losses. Overall, it was not well received, and investors sold off SHOP stock when it came out.
On the first day of trading after SHOP’s release came out, the stock fell 16%, thanks to the earnings miss and weak guidance. In the weeks and months that followed, the stock gained back what it had lost and then some, thanks mainly do to improving sentiment toward tech stocks as a whole.
If Shopify’s next earnings release meet or exceeds estimates, then the company will have a chance to keep the momentum going.
What to expect
It’s never easy to predict what a company will achieve in a given quarter. However, we know that Shopify itself is expecting
- High-teens percentage revenue growth;
- A slight improvement in gross margin (that is, gross profit divided by revenue);
- Low single-digit growth in operating costs;
- Capital expenditures continuing at last year’s level; and
- Stock-based compensation continuing at last year’s level.
Given that SHOP expects high-teens growth in sales combined with single-digit growth in expenses, we should expect the profit situation to improve. However, there are some factors that could complicate this.
For example, Shopify owns a portfolio of listed stocks. If they went down last quarter, they could cause SHOP to swing back into negative earnings. Global-E Online, one stock that Shopify owns, has risen 32% this year, so is there is reason to think that it will help SHOP’s earnings rather than harm them. Nevertheless, we can’t be 100% sure how the cookie will crumble.
Having looked at the upcoming developments for Shopify, I think there is reason to believe the company will do well. It continues expecting strong growth, while also lowering its expense growth. It should do well as a business. The stock is another matter: it is rather expensive, trading at 10 times sales. That’s too high for a value investor like me, but other investors may have different experiences with SHOP stock.