Shopify (TSX: SHOP) has come of age. The e-commerce stock that became the best performer during the pandemic and hit a speed bump has regained momentum. During the pandemic, the world came online to shop. It was said that Shopify achieved its 10-year earnings in one year. However, the glory was short-lived, as the opening of the lockdown divided the traffic between physical and online stores.
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Shopify’s fall before the rise (2022-2023)
While the gross merchandise volume (GMV) and revenue kept rising, Shopify converted its US$2.9 billion net profit to a US$3.46 billion net loss in 2022. The reason was the company launched several new products, including the logistics business, which increased its operating expenses by 62%. Shopify couldn’t sustain an asset-heavy model and sold its logistic business to Flexport in June 2023 and slashed 20% of its workforce.
The fall was necessary. If it weren’t for the new product launches, Shopify would not be able to increase its revenue per consumer. While the logistics business didn’t work well, offline solutions, international expansion, and Shop Pay converted Shopify into a profitable business.
Shopify: The rise in 2024
The pruning of services that did not work and scaling of services that worked led to Shopify reaching US$1 trillion GMV. Moreover, control over expenses and agile expansion helped it achieve US$1.29 billion in net income in the fourth quarter of 2024, surpassing the US$1.15 billion reported in the third quarter of 2021 (pandemic year). It has surpassed its pandemic numbers through the normal course of business.
In these three years, from 2022-2024, the company has managed to sustain an annual revenue growth rate of 26%.
Shopify outlook for 2025
Shopify expects to sustain its mid-20s percentage revenue growth rate in the first quarter of 2025. It aims to keep its operating expense at 41-42% of its revenue.
The first quarter will be seasonally low as it comes out of the holiday season. However, the falling interest rates should boost consumer spending, which could support Shopify’s GMV in 2025. At the same time, a falling Canadian dollar could negatively impact its earnings as the company reports earnings in U.S. dollars.
There is also uncertainty around Trump tariffs. If Canada and the U.S. enter a trade war, inflation could increase, offsetting the benefits of falling interest rates. In the worst-case scenario, Canada could face a mild recession. However, these are just scenarios, and none of them has come true yet.
Positive scenarios could be trade going as expected and Canadians increasing their spending, helping Shopify achieve a new milestone of GMV. Shopify stock prospers in a growing economy and falls in a slowing economy. However, the company’s strong balance sheet with little leverage and asset-light model gives it the flexibility to experiment with new products and services.
Depending on which side the economy moves, Shopify stock could either make a new high in the second half or dip further. However, it will likely revive from the dip that doesn’t change the world for it.
Should you buy, sell, or hold this stock?
Shopify stock has surged 135% since August 2024 and is now set for a seasonal dip. If you are considering buying the stock, wait till April for the seasonal dip to buy the stock at its low and hold it for the long term. You could consider selling some shares and booking a profit before the stock falls. This is a stock to hold in your Tax-Free Savings Account (TFSA) to boost your portfolio value and generate tax-free wealth.
