After sliding by 27% in the previous two months, Shopify (TSX:SHOP) stock staged a sharp recovery in November 2023. With this, SHOP stock has rallied by nearly 35% in the last two months to currently trade at $98.54 per share with a market cap of $126.6 billion, extending its year-to-date gains to about 110%. By comparison, the TSX Composite Index has risen 3.8% in the last two months, taking its year-to-date gains to 4.4%.
Before discussing whether Shopify stock can maintain this positive momentum in the coming quarters, let’s take a closer look at the key factors that could be responsible for its recent rally.
Why Shopify stock has rallied
After delivering outstanding 661% positive returns in 2019 and 2020 combined, Shopify stock started facing high volatility in 2021 as gradually subsiding global pandemic-driven demand for its e-commerce platform services worried investors. In 2022, central banks in the United States and Canada started rapidly raising interest rates to fight inflationary pressures, triggering a massive selloff in high-growth tech stocks. SHOP stock, which was already facing weakness in its YoY (year-over-year) financial growth trends that year, led this selloff. As a result, Shopify stock ended 2022 by losing 73% of its value at $47.01 per share.
Although macroeconomic challenges continued to keep tech investors on edge in 2023, Shopify’s ability to maintain strong top-line growth even in a difficult economic environment seemingly impressed investors, leading to a healthy recovery in its share prices. To give you a little idea about that, the Ottawa-headquartered e-commerce giant’s total revenue in 2022 jumped 21.4% YoY to US$5.6 billion, even as most other tech firms faced difficulties due to slowing global economic growth.
Shopify’s sales growth has strengthened further in 2023 so far, giving investors another reason to cheer. In the first three quarters of 2023, the company’s total revenue has gone up by 27.2% YoY to US$4.9 billion. Moreover, it has delivered adjusted earnings of US$0.39 per share in these three quarters of 2023 against an adjusted net loss of US$0.03 per share during the same period of the previous year.
Rising hopes that the central banks in the United States and Canada will soon pause interest rate hikes could be another supporting factor for Shopify’s stock price rally, especially in the last two months.
Shopify’s growth story isn’t over yet
Despite rallying by around 110% in 2023 so far, we shouldn’t forget that SHOP stock is off 43% from its 2021’s closing level and around 54% down from its all-time highs.
In the third quarter of 2023, Shopify’s gross merchandise volume jumped 22% YoY to US$56.2 billion, while its monthly recurring revenue saw a strong 32% increase from a year ago to US$141 million with the help of positive growth across its subscription plans. As Shopify continues to focus on making its e-commerce platform more user-friendly by taking advantage of new technological advancements, including artificial intelligence, its long-term fundamental growth outlook remains strong. This growth potential could help SHOP stock maintain its strong upward momentum in the coming quarters, as the economic environment also gradually improves.
