A tech superstar was born at the time when cannabis stocks were the talk of the town in Canada. Shopify (TSX:SHOP) ranked second to marijuana producer Canopy Growth in the inaugural TSX30 List in 2019, a flagship program of TSX’s top-performing stocks.
The e-commerce company ranked first and second in the next two years, owing to astronomical returns (three-year dividend-adjusted share price performance) of 1,043% and 846% in 2020 and 2021, respectively. However, SHOP lost -74.8% in 2022, a big letdown for the high-growth stock.
Shopify reported a $3.5 billion net loss compared to the $2.9 billion net income in the previous year. Market observers raised concerns about revenue growth following the disappointing results. Redemption came in 2023 as the overall return jumped to 124.4%.
As of this writing, SHOP trades at $107.11, up 3.8% year-to-date. Some stock analysts believe the $138.2 billion company has established a strong, if not a leadership position in the e-commerce industry. There are three reasons the once tech darling can reclaim its lofty position on the TSX.
Return to profitability
Shopify is thriving this year, as evidenced by impressive financial results in Q2 2024. In the three months ending June 30, 2024, revenue, gross profit, and monthly recurring revenue increased 21%, 25%, and 25% respectively to US$2 billion, US$1 billion, and US$169 million.
Notably, free cash flow (FCF) in the same quarter climbed 243.3% year-over-year to US$333 million, while net income reached US$171 compared to a US$1.3 billion net loss in Q2 2023.
According to Jeff Hoffmeister, CFO of Shopify, it was another quarter of robust financial performance. He cited the 22% year-over-year gross merchandise volume (GMV) growth to US$67.2 billion, expanded FCF margin, and mixed consumer spending environment. “We delivered across every metric,” he added.
Hoffmeister describes Shopify today as a high-growth global technology leader in commerce laser-focused on operating execution and efficiency. The e-commerce platform commits to leveraging its core strengths and will continue investing in opportunities for sustainable growth and long-term profitability.
Enabler of global commerce and entrepreneurship
Shopify President Harley Finkelstein said about the quarterly report, “Our Q2 results make it clear: Shopify is rapidly strengthening its position as a leading enabler of global commerce and entrepreneurship.” The pitch to merchants and business owners remains the same: you can build from scratch and eventually sell here, there, and everywhere.
Shopify also enables merchants to preserve and enhance brand identity. Finkelstein added, “More and more merchants across the world are putting their trust in Shopify’s unified commerce operating system to fuel growth and simplify complex operations.”
Artificial intelligence (AI) and machine learning (ML) should also aid Shopify’s stock market performance through its partner Klaviyo. The latter is the email provider for high-volume merchants. Shopify invested US$100 in the Boston-based intelligent email marketing and SMS platform that uses AI and ML.
Strong tailwinds
Falling interest rates are the third compelling reason to invest in Shopify as if there’s no tomorrow. Lower rates could spur consumer spending and accelerate economic growth. On the business side, expect more merchants to leverage Shopify’s tools and align with current marketing trends to win more customers.
