U.S. Markets closed

This Year’s Online Shopping Surge Justifies the Shopify Stock Price

Brad Moon

Shopify (NYSE:SHOP) provides a platform for small businesses to set up shop online, and since Thanksgiving, Shopify stock has posted a 25% gain. Talk about Happy Holidays.

This Year's Online Shopping Surge Justifies the Shopify Stock Price

Source: BalkansCat / Shutterstock.com

Of course, the holiday shopping season is a huge deal for retailers. For many stores, purchases from Thanksgiving through the end of the year can represent 30% of their annual sales. This period is just as important for online retailers as well, and 2019 is smashing online sales records.

While that means good news for eCommerce giants like Amazon (NASDAQ:AMZN), it can really move the needle for firms like Shopify.

InvestorPlace - Stock Market News, Stock Advice & Trading Tips

Holiday Sales Numbers  and Shopify Stock

When consumers shop online, the obvious beneficiary is Amazon. But a growing number of small businesses have been opting to open their own digital storefront, using the platform created by Shopify.

Customers pay a monthly fee for an all-in-one digital storefront solution hosted by Shopify. They also pay a percentage of all sales as a transaction fee (the rate varies by plan), with these additional fees waived if the merchant opts to use Shopify Payments. 

Shopify earns monthly subscription revenue for the storefront plus a percentage of all sales. That’s been a recipe for the steady growth of Shopify stock.

In 2018, online retailers saw significant growth in consumer spending. On Cyber Monday — the Monday after the American Thanksgiving holiday — U.S. online sales hit $7.9 billion. That was a new record and a big increase over the previous year’s $6.6 billion.

This year has been even better than expected for online retailers, and that has been reflected in the gains posted by SHOP stock over the past month. Online shopping sales have increased around 20% this year, in part because of consumer confidence and in part at the expense of traditional brick and mortar retailers.

The data shows a series of record-breaking days for online retailers. On Thanksgiving Day itself, American consumers spent $4.2 billion online. On Black Friday, they spent $7.4 billion. Cyber Monday was the granddaddy of them all. The $9.4 billion spent online by U.S. consumers was the largest eCommerce sales day in history in the U.S. and a 19% increase over last year’s numbers.

Shopify provided holiday shopping tools for its merchants, including the ability to post discount codes, promo codes and free shipping. The company announced that globally (across 175 countries) its merchants sold over $2.9 billion in merchandise to over 25.5 million customers from Black Friday to the close of Cyber Monday. Compared to the $1.8 billion in sales reported on the platform during the same period last year, that’s a 61% gain.  

Bottom Line for Shopify Stock

SHOP stock has been on a consistent growth path since the company went public in 2015. The past 12 months, in particular, has rewarded investors, with SHOP posting an impressive 228% gain. 

That said, Shopify stock suffered a dramatic stumble just a few months ago, shedding 27% of its value in a one-month period starting at the end of August. That was blamed on factors both in and out of the company’s control: a secondary stock offering, and worries about the impact on small businesses should the global economy stumble.

There was another slide to close out October, after the company’s Q3 earnings report disappointed analysts with a slowing revenue growth rate combined with an unexpected operating loss for the quarter.

So the company does face challenges, and despite its overall performance in 2019, an investment in SHOP is far from bulletproof. In fact, at this point investment analysts are pretty evenly split between buying and holding Shopify stock. 

However, based on the latest online holiday shopping data, SHOP stock still looks to have fuel in the tank — at least until the credit card hangover begins in January, and consumers take a break on spending.

As of this writing, Brad Moon did not hold a position in any of the aforementioned securities.

More From InvestorPlace

The post This Year’s Online Shopping Surge Justifies the Shopify Stock Price appeared first on InvestorPlace.