Just when you thought the time of stock climbs had come and gone, Shopify (TSX: SHOP) shares soared over the last week or so. Shopify stock came out with earnings that were positive, true. But it seems the layoffs that would create reductions around $270 million and ecommerce focus were what really impressed investors and analysts alike.
Shares of Shopify stock are now up 83% in the last year, 70% year to date, and 30% since May 3, as of writing. So what should investors do now? Is Shopify stock back to being the king of e-commerce?
What happened
Let me sum up what’s been going on in the last two weeks with Shopify stock. There was a lot to unpack during earnings, and analysts were quite impressed. First, there were the better-than-expected results to go over.
Gross merchandise volume increased 15% to $49.6 billion year over year, and total revenue jumped 25% to $1.5 billion. Merchant solutions revenue also went up 31%, gross payments volume was up to $27.5 billion as well. Subscription solutions revenue was up 11%, and monthly recurring revenue up 10%.
As for profit, this grew by 12% year over year to $717 million. Its operating loss increased to 13% of revenue from 8%, however, with adjusted operating loss down to $31 million from $32 million same time last year.
Fine, but there’s more
So there certainly was something to celebrate, but I’m not sure Shopify stock would have increased like it did if not for two other important points. First, the company went through layoffs mainly in the management department. This amounted to reductions around $230 million.
Furthermore, the company sold its logistics company to Flexport in exchange for 13% equity in Flexport. It will also divest its 6 River Systems to Ocado, though the terms are not outlined.
This last part is important. Shopify stock has done incredibly well with ecommerce. Now, its refocusing attention there. No trying to be every single part of the ecommerce industry. Instead, focus on gaining every type of business out there, large and small, and increasing your revenue again and again. This is the sure path to profits we’ve seen in the past.
With these movements, Shopify stock expects to reach free-cash-flow positivity during each quarter during the next fiscal year. Analysts went on to state the stock is likely to be an outperformer in 2023, with a buy rating pretty much across the board.
What about after the jump?
Here’s the thing, analysts came out with their earnings updates after the climb in share price. This was after shares already climbed 25%. In some cases, analysts even doubled their potential share price target.
Even so, the price target remains at around $85 as of writing. Given that, Shopify stock looks fairly valued. This is important to note, as the stock may not drop in the future, but it may not climb by much until the next earnings round.
Even so, analysts still recommend Shopify stock as a buy. And given that by the end of 2023 we should be back in a bull’s market, long-term holders may want to consider adding this once-great stock back to their portfolio once more.
