What Happened:
Shares of e-Commerce software platform Shopify (NYSE:SHOP) jumped 5.1% in the morning session after Black Friday generated $9.8 billion in U.S. online sales, according to Adobe Analytics, up 7.5% from a year ago. This spending increase likely signals a healthier-than-feared consumer who is more open to spending compared to last year, when inflation was hitting wallets hard and the cost of everything from groceries to gasoline was rising quickly.
Separately, Shopify announced a record-breaking Black Friday, with global sales from its merchants totaling $4.1 billion. Surpassing the previous year's figures, sales saw a substantial 22% increase, peaking at an impressive $4.2 million per minute on November 24, 2023. The hottest product categories were clothing, personal care, and jewelery, while the top-selling countries were U.S., U.K., and Canada. The momentum is likely to extend to Cyber Monday (27th November 2023), when many consumers are back at work but carving out a portion of their days to shop online. Results of Cyber Monday sales could further impact e-commerce stocks. After the initial pop the shares cooled down to $73.58, up 4.4% from previous close.
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What is the market telling us:
Shopify's shares are a little volatile and over the last year have had 33 moves greater than 5%.
The previous big move we wrote about was 25 days ago, when the stock gained 10.6% on the news that the company reported third-quarter results that beat Wall Street's expectations for revenue, driven by better-than-expected gross merchandise volume and gross payments volume. Earnings per share also beat, and gross margin improved significantly. We were impressed by Shopify's free cash flow generation this quarter, which beat analysts' estimates with flying colors ($276 million vs $193 million consensus).
Looking ahead, the company's outlook was similarly strong and ahead of expectations. For Q4, Shopify expects revenue to grow low-to-mid 20s% year on year excluding a 4 to 5 percentage point headwind from the sale of the logistics business. Additionally, the company expects a 3 to 4 percentage point increase in gross margins year on year. Compared to the just-reported Q3, Shopify expects higher free cash flow dollars and margins in Q4. In terms of new products, Shopify launched the Retail Plan, which is designed to help brick-and-mortar retailers with payments and building a simple online presence. Overall, we think this was a really good quarter that should please shareholders.
Shopify is up 106% since the beginning of the year. Investors who bought $1,000 worth of Shopify's shares 5 years ago would now be looking at an investment worth $5,092.
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