Will Shopify Stock Rally Further?

by Trefis Team
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Shopify stock (NYSE: SHOP) is up by about 9% over the last week (five trading days) outperforming the S&P 500 which is down by about -0.3% over the same period. The recent surge in the stock comes as the e-commerce software provider delivered a solid set of Q1 2021 earnings, with sales more than doubling year-over-year to $989 million, with its adjusted EPS standing at $2.01, roughly 3x the consensus estimates. So is Shopify stock poised to rise further or could it see a decline? Per our machine learning engine, which analyzes historical stock price data, Shopify stock has a 58% chance of a rise over the next one month (21 trading days) after gaining almost 9% in the last five trading days. The one-month expected return for the stock is 3.5%. See our analysis Shopify Stock Chances of Rise for more details.

So what’s the outlook like for Shopify? Now, Shopify’s Q1 results were much stronger than expected, as the latest round of government stimulus, which ended in early April, helped bolster gross merchandise values that, in turn, drive Shopify’s merchant solutions revenue. However, growth is likely to slow a bit in the coming quarters, as the Covid-19 pandemic recedes, and consumer spending in brick and mortar stores likely picks up. That being said, the longer-term outlook for the company looks good, in our view. E-commerce sales should continue to grow quickly at the expense of physical store sales, as consumer behavior is likely to have undergone a significant shift through the pandemic, and Shopify, with its highly scalable business model, should benefit as more small businesses go online. Moreover, the company is positioning itself as a merchant-friendly alternative to Amazon, which is seen as competing with sellers on its platform. Shopify’s revenues are likely to grow by over 50% this year, per consensus estimates.  Considering this, we think it’s quite likely that the company will generate continued returns for shareholders, although the rate of returns is likely to diminish considerably given the company’s high valuation (about 280x forward earnings).

[2/10/2021] What’s Driving Shopify Stock?

Shopify (NYSE: SHOP) stock has rallied by about 30% year-to-date, and the stock has jumped almost 3x over the last 12 months. There are a couple of trends driving the recent rally. Firstly, analysts and investment managers have been increasingly bullish on the stock, despite its high valuation, citing Shopify’s sizable market opportunity. Secondly, Shopify said that it would be extending its payments service Shop Pay for transactions on Facebook and Instagram, marking the first time the tool is available outside the e-commerce stores of Shopify merchants. Facebook, with over 1.8 billion daily users, should be a sizable market for Shopify’s growing payment service.

Now are further gains in the cards for Shopify, after this big rally? Shopify trades at a relatively steep 45x consensus 2021 revenue, but it is growing quickly, with sales likely to expand by 34% year-over-year in 2021. In comparison, Etsy, an online marketplace targeted at small and home-based businesses, trades at a more reasonable 16x projected 2021 revenues, consensus estimates peg growth at just about 12% for this year. If Shopify is able to sustain its high growth, considering the quickly growing e-commerce market, and its focus on small businesses, it should be able to drive further returns for investors, although the rate of returns is likely to diminish considerably given the company’s already high valuation. See our analysis Why Shopify Stock Moved 14x since 2017 for a closer look at what’s driven Shopify’s stock in recent years.

[1/19/2021] Are Further Gains Around the Corner

Shopify (NYSE: SHOP), a technology company that helps businesses get online by setting up e-commerce websites and handling related services, has seen its stock price rise by about 2.6x over the past 12 months. The stock is also up by almost 11x since the end of 2017. The Covid-19 pandemic has helped accelerate Shopify’s business, as customers increasingly turned to the Internet to buy things with more small businesses also investing in building online stores using Shopify’s solutions. For perspective, the number of new businesses on Shopify’s platform shot up 71% year-over-year in Q2 alone. Are further gains in the cards for Shopify stock or are the recent trends priced-in the stock for the near-term? Let’s take a look at what’s driven the gains in Shopify’s stock price in recent years and what the outlook for the company could be like. See our dashboard analysis on Shopify Stock Grew Over 10x Since 2017. Here’s How. for a detailed overview of how Shopify’s Revenues and multiple have changed in recent years.

What Has Driven Shopify Stock Price In Recent Years

Shopify has two revenue streams – namely Subscriptions, which gives users access to its e-commerce platform and tools, and Merchant Services which include payments, shipping, and financing. Shopify’s Revenues have grown from about $673 million in 2017 to about $2.46 billion in the last 12 months, marking a growth of about 265%. While Shopify’s Subscription Services expanded by about 37% over the last 12 months, Merchant solutions Revenue almost doubled, as Gross Merchandise Volume – which is essentially the total dollar value of orders facilitated through the Shopify platform – continued to soar, with the share of payments processed by Shopify also rising. Shopify’s Revenue per Share has grown at a slightly slower pace compared to Revenue, rising by about 184% since 2017 to about $20 per share, on account of a slightly higher share count. However, investors have valued Shopify more richly, with its P/S multiple rising from around 17x in 2017 to 30x in 2019 and 58x in 2020. Shopify’s higher valuation has come partly due to stronger recent growth, higher valuations for equities, in general, and increasing investor interest in the stocks of asset-light companies with growing revenue streams.

Are More Gains In The Cards For Shopify Stock?

Shopify’s Revenue is expected to grow by 80% in 2020 (up from around 48% last year) per consensus figures to about $2.85 billion, driven by Covid-19 related demand for its subscription and merchant services. Further, per consensus, Revenues are likely to grow to about $3.8 billion next year. This means that the company trades at about 38x projected 2021 Revenues. Can Shopify sustain its growth and eventually drive further gains for investors? Shopify’s addressable market is growing quickly as more businesses move online and the company’s offering is also highly scalable, enabling it to acquire customers seamlessly.  Moreover, the company is positioning itself as a merchant friendly alternative to Amazon, which is seen as competing with sellers on its platform. Shopify is also moving into the fulfillment market, while also offering financing and payment solutions. Considering this, we think it’s quite likely that the company will generate continued returns for shareholders, although the rate of returns is likely to diminish considerably given the company’s already high valuation.

While Shopify stock may be worth considering, 2020 has also created many pricing discontinuities that can offer attractive trading opportunities. For example, you’ll be surprised how counter-intuitive the stock valuation is for Apple vs Microsoft. Another example is Ansys vs Adobe.

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