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Shopify SHOP has been a Wall Street superstar for years, as businesses of all shapes and sizes turn to it to help them run everything e-commerce. The pandemic then solidified the need for digital commerce and SHOP’s revenue and earnings have continued to expand at impressive rates.
Shopify is part of a wave of big tech names from Apple AAPL to Microsoft MSFT set to report quarterly earnings during the final week of October, with its results due out before the markets open on Thursday, October 28. And now might not be a bad time to consider buying a resurgent SHOP.
Shopify provides what it calls “essential internet infrastructure for commerce,” including everything from site design and marketing to payments and shipping. SHOP’s most basic package starts with a monthly fee of $29 for sellers and a 2.9% transaction fee.
Shopify makes money from recurring subscription fees and a slew of various add-ons that help run many other essential business functions. SHOP’s point-of-sale products and software have gained momentum as well, competing against the likes of Square SQ. The goal is to help create a unified approach between in-person and digital.
Shopify boasts that it powers over 1.7 million businesses in more than 175 countries. The company offers different tiers, with some aimed at entrepreneurs, as well as small and medium businesses. Plus, its solutions support high-volume merchants and big businesses and it’s partnered with Walmart WMT, Facebook FB, and other economic giants.
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Shopify’s revenue surged for years prior to the pandemic, with 2019’s 47% growth its slowest as a public company (2015 IPO). The firm’s covid-boosted 2020 revenue skyrocketed 86% to $2.93 billion. Most recently, SHOP posted blowout Q2 results to top the billion-dollar threshold for the first time.
Looking ahead, Zacks estimates call for the firm’s fiscal 2021 revenue to jump 58% to $4.62 billion, with FY22 ready to surge another 34% to $6.19 billion. Percentage-wise, next year is expected to mark a slowdown. But it’s expected to add $1.57 billion to the top line, which was its total 2019 sales.
On the bottom-line, its adjusted earnings are projected to soar 72% this year and then pop slightly in 2022. These figures could be even higher considering that Shopify has destroyed our EPS estimates by an average of 111% in the trailing four quarters and its FY22 consensus figure is up 40% compared to where it was prior to its Q2 release.
The tech firm boasts an impressive balance sheet with $7.8 billion in cash, equivalents, and marketable securities against $1.83 billion in total liabilities. Its strong financial footing will help it continue to grow, while pursuing new areas and even possibly support an acquisition.
Shop also has plenty of room left to run within the booming e-commerce sector, since it’s far from a peak. In fact, some might be somewhat surprised to know that digital commerce accounted for only 13.3% of total U.S. retail sales last quarter, down from a record 16% in Q2 FY20.
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Shopify road its fundamentals and the strength of the space to the tune of a 1,000% climb in the last three years and an even bigger run since its 2015 IPO, to leave Amazon AMZN and many other tech giants in the dust. The stock is also up 50% in the last year to top the tech sector’s 38%. SHOP then got caught up in the market pullback, which helps provide investors with a slightly better entry point.
Shopify stock has surged 14% in the last few weeks, having bounced off its 200-day moving average on October 4. SHOP briefly broke above its 50-day on Thursday. But it fell over 5% Friday morning, as part of a broader tech selloff after Snap's SNAP big disappointment. SHOP now trades 15% off its records.
Shopify lands a Zacks Rank #3 (Hold) right now, alongside an “A” grade for Momentum and a “B” for Growth in our Style Scores system. And 14 of the 27 brokerage recommendations Zacks has are “Strong Buys,” with only one “Sell.”
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