The Canadian e-commerce platform giant Shopify (TSX:SHOP) is gearing up to announce its third-quarter results next week on November 12. Although SHOP stock has underperformed the broader market so far in 2024, as it currently trades with 15% year-to-date gains compared to the TSX Composite’s 18.5% increase, investors’ high expectations from its upcoming results seem to be propelling the stock higher of late.
But is it the right time to buy in, or should you hold off? Before diving into what to expect on November 12 and whether Shopify might be a buy before those numbers drop, let’s quickly review Shopify’s financial performance from recent quarters.
Reviewing Shopify’s financial growth trends
Shopify’s recent financial performance has been marked by strong growth across key financial metrics, helping it maintain a strong position in the global e-commerce space despite recent macroeconomic uncertainties.
In the second quarter of 2024, the Ottawa-based firm registered a solid 20.7% YoY (year-over-year) increase in its total revenue to more than US$2 billion. Its top-line growth was even more impressive when adjusted for the sale of its logistics business, translating to a 25% YoY jump.
Shopify’s shift away from logistics and its continued focus on higher-margin products and services also helped it deliver a 25% YoY increase in its gross profit to US$1 billion. Similarly, its gross profit margin last quarter expanded to 51.1% from 49.3% in the same period a year ago.
Moreover, the company’s free cash flow margin also more than doubled on a YoY basis in the June 2024 quarter to 16%, reflecting its strong financial health as it continued to manage its cash reserves and operations efficiently. These positive factors explain why SHOP stock rocketed by more than 26% during the week following its impressive second-quarter results.
What to expect from Shopify’s upcoming third-quarter results
Looking ahead to the third quarter of 2024, Shopify has already set a positive outlook. In its second-quarter earnings report, the e-commerce firm projected a low- to mid-20s percentage growth rate in top line YoY, reflecting its management’s confidence in maintaining sales momentum despite a challenging economic backdrop. And analysts’ expectations are no different. According to Street analysts’ latest consensus estimates, the company is likely to report third-quarter revenue of US$2.1 billion, reflecting a 23.4% YoY increase.
Shopify also expects its September quarter gross margin to improve by around 50 basis points compared to the previous quarter, building on the gains from its strategic shift away from logistics and towards subscription and payment solutions. Wall Street analysts expect the company to post US$0.27 per share in adjusted earnings for the third quarter, reflecting nearly 12% growth on a YoY basis.
Another key figure investors may want to keep a close eye on in Shopify’s third-quarter report is its GMV (gross merchandise volume), which rose 22% YoY in the second quarter. GMV, which reflects the total sales processed through Shopify’s platform, is a critical indicator of the platform’s popularity among merchants and the overall health of e-commerce spending.
Should you buy Shopify stock before November 12?
With Shopify’s third-quarter earnings announcement just around the corner, the big question for investors is whether to jump in now or hold off until after the results are released. While short-term economic uncertainties continue to loom, declining interest rates and easing inflationary pressures might create a more favourable long-term environment for growth stocks like Shopify. Given its strong fundamentals, I wouldn’t be surprised if the company gives a strong growth outlook for the rest of the year, which could drive its shares higher after its upcoming earnings announcement.
