Shopify (TSX:SHOP) looked unstoppable in 2024. The company has gone through a massive rework to get to where it is today. After seeing shares plunge from expanding too much, too soon, and cuts to get back to normal, it’s now back to its roots.
Yet those roots haven’t been enough as of late. While the company continues to see growth in its business, Shopify stock is now down 21% from 52-week highs. And even more from its all-time highs at $228 per share (adjusted for the stock split).
With that in mind, is it a risky investment on the TSX today or one that’s worth it for the potential reward?
Why so interested?
There’s a reason that Shopify stock had so much interest in the first place, as it was around at the right time. The pandemic led to a surge in e-commerce use, with Shopify stock a major winner of this. Yet after trying to expand to fulfillment centres among other items, the company has gone back to focusing on the platform.
Now, Shopify provides a comprehensive and user-friendly platform that allows merchants to set up and customize their online stores without needing extensive technical expertise. The platform offers a wide range of features and tools for designing storefronts, managing inventory, processing payments, and tracking sales and customer data.
In addition to creating standalone online stores, Shopify enables merchants to sell their products across multiple channels, including social media platforms (such as Facebook and Instagram), online marketplaces (such as Amazon and eBay), and in-person through point-of-sale (POS) systems. This multichannel approach helps merchants reach customers wherever they are and maximize their sales opportunities.
Earnings
Shopify stock is now set to release earnings on May 8 for the first quarter. However, let’s take a look at the last few quarters to see if there is some strong momentum underway for Shopify stock.
During the second quarter, total revenue hit US$1.7 billion, with gross merchandise volume (GMV) hitting US$55 billion. The third quarter remained steady at US$1.7 billion, with GMV rising to US$56.2 billion.
For the fourth quarter, the company was also able to take advantage of the record-setting Black Friday weekend sales. Revenue climbed to US$2.1 billion in the quarter, with GMV at US$75.1 billion! For the year, there was a rise across the board, hitting revenue of US$7.1 billion, and GMV of US$235.9 billion, all over 20% higher than 2022 levels.
What’s next?
The outlook, of course, was what investors were interested in, yet it can paint a picture as to what investors can expect. There are risk factors, and the outlook should also be impacted by sales of the company’s logistics business. Therefore, the third quarter should see revenue growth of between 500 and 600 basis points.
Revenue should grow in the low-20s percentage rate on a year-over-year basis, with free cash flow in the high single digits. And as in the past, the company has been able to hit those targets quarter after quarter. So, with momentum on their side and more growth to come, investors should certainly continue to keep an eye on Shopify stock. In fact, with shares down 21%, it could be a great time to buy ahead of earnings.
