Some people and investors might be skeptical of the phrase “new normal.” And it’s not that hard to project that things will return to something closer to pre-pandemic days when this is all over, especially as the Covid-19 vaccine is rolled out.
Therefore, a more important question might be what industries that the pandemic highlighted appear poised to grow going forward no matter what. One clear coronavirus standout and surefire long-term winner is e-commerce.
Shopify helps businesses build, maintain, and grow their e-commerce presence. SHOP makes money from recurring subscription fees and add-ons such as payment processing. And it has exploded in popularity with businesses and investors during the coronavirus, as e-commerce grew in importance. SHOP has also continued to partner with influential players within tech and retail from Facebook FB to Walmart WMT.
The Canadian firm’s business model and offerings are vital in an age where companies need to expand their digital commerce footprints in order to grow, and more recently, to survive. SHOP’s sales growth has been impressive since it went public in 2015 and it’s coming off back-to-back quarters of 97% revenue expansion.
Shopify’s Q3 gross payment volume also jumped 106%, with monthly recuring revenue up 47%. More recently, SHOP said that Black Friday/Cyber Monday weekend sales grew by 76%.
Zacks estimates call for SHOP’s adjusted Q4 earnings to soar 188% on 78% stronger sales. Overall, its FY20 revenue is projected to jump 80% to reach $2.85 billion, with its EPS figure expected to skyrocket from $0.30 to $3.71 a share. This top-line growth would easily beat the 73%, 59%, and 47% sales expansion SHOP posted in the last three years, respectively.
Clearly, it would be nearly impossible to post the same amount of growth in 2021, since the dramatic overnight shift and deeper push into e-commerce might have already happened for many businesses.
Nonetheless, Shopify’s 2021 revenue is projected to climb 30% or $840 million above our FY20 estimate to reach $3.69 billion. And SHOP’s FY20 and FY21 consensus earnings estimates have both climbed roughly 50% since its Q3 financial release in late October.
Shopify boasts that it helps power more than one million brands around the world. Investors should also know that the e-commerce market has miles of runway left, as it accounted for roughly 14% of total retail sales in the third quarter, down from a record 16% in Q2.
This is up from 11% in the year-ago period. Yet some might have expected the figure to be higher considering the near-perfect conditions to outperform.
SHOP shares have soared from around $30 in its early trading days back in 2015 to their current price of roughly $1,169. The stock has crushed Amazon AMZN over this stretch and more recently, with shares up 200% in the last year. Shopify stock is also up 20% in the past month and it just hit new highs on Thursday.
Clearly, the run might make some investors nervous that it has come too far too fast. That said, its run has been less hyperbolic than e-commerce firm Esty ETSY and pandemic high-flyer Zoom Video ZM, up 330% and 500%, respectively in 2020. And on the valuation side, SHOP trades at a 20% discount to its own year-long highs in terms of forward 12-months sales despite trading at new records.
Shopify grabs a Zacks Rank #3 (Hold) at the moment, alongside “A” grades for Growth and Momentum in our Style Scores system. Plus, 12 of the 27 brokerage recommendations Zacks has for SHOP come in at “Strong Buy,” with 14 at a “Hold.”
There could be some near-term selling pressure given its run. Yet, some investors might want to consider buying Shopify as a longer-term, growth-focused play within an industry that’s set to boom for decades.
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