Why Shopify (SHOP) Stock Is Trading Up Today

Max Juang /
2023/11/02 1:07 pm EDT

What Happened:

Shares of e-Commerce software platform Shopify (NYSE:SHOP) jumped 10.6% in the morning session after 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.

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What is the market telling us:

Shopify's shares are very volatile and over the last year have had 34 moves greater than 5%. But moves this big are very rare even for Shopify and that is indicating to us that this news had a significant impact on the market's perception of the business. 

The biggest move we wrote about over the last year was six months ago, when the stock gained 12.9% on the news that the company reported gross merchandise value, revenue, and operating profit that beat expectations pretty strongly this quarter. Revenue growth was strong and it will continue in the next quarter as the company guided Q2 to feature a similar growth rate vs. Q1 (in-line with Consensus expectations). Shopify announced that it is selling its logistics business to Flexport (expected to close in 2Q23), and Shopify will receive 13% equity interest in Flexport. The market likely cheered this deal because it should improve the company's operating leverage and capex profile. Lastly, Shopify announced layoffs that will impact roughly 20% of its workforce. Overall, we think this was a really good quarter that should leave shareholders feeling very positive.

Shopify is up 66.6% since the beginning of the year, but at $59.39 per share it is still trading 15.6% below its 52-week high of $70.37 from July 2023. Investors who bought $1,000 worth of Shopify's shares 5 years ago would now be looking at an investment worth $4,080.

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