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Be Patient in Shopify Stock Ahead of Earnings

Tom Taulli

Shopify (NYSE:SHOP) seems unstoppable. During the year so far, the shares are up a sizzling 139%. If you take a look at the chart, it is mostly on an upward slope. Regardless of any volatility in the markets, geopolitical uncertainty or economic challenges, SHOP stock has seemed to be in its own universe. Even among the many red-hot cloud companies, this has been a standout performance.

SHOP Stock: Be Patient In Shopify Stock Ahead of Earnings

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But hey, even the best stocks have cooling off periods, right?


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If anything, the second quarter earnings report — which will be announced before the market opens on Thursday — will likely be critical. In other words, can the company keep up with the lofty expectations?

Well, for the past four quarters, the company has been able to beat the forecasts. But given the big move in SHOP stock already, it seems that the company will need to have a major beat.

So let’s take a look at the consensus for Q2. Analysts are forecasting earnings of 3 cents a share, up from 2 cents a share in the same period a year ago. As for the top line, Wall Street is looking for revenues of $350.46 million, up about 43%.

Now if this pans out, it will be a deceleration. Keep in mind that – in Q1 – the growth ramp was 50%. In fact, during Q1 in 2018, the growth was 68%. But hey, its really tough to keep up the momentum, especially as the revenue base gets much larger.

Shopify Stock and the Highlights of the Second Quarter

During Q2, Shopify had its mega Unite conference. And yes, there were lots of announcements, including the following:

  • There was a major upgrade to the online store platform. It is now easier to create and customize storefronts — without having to code.
  • There is the Shopify Fulfillment Network, which is similar to what Amazon.com (NASDAQ:AMZN) has for its merchants. That is, it is a sophisticated system that leverages AI (Artificial intelligence) to optimize products for low-cost inventory and delivery.
  • Shopify Plus, which is for larger merchants, has been upgraded. There are better capabilities for viewing of data across locations and permissions. There is also a system that allows for automating repetitive processes.
  • The Shopify POS offering has undergone a major revamp. There are also new features, such as the ability to use a loyalty program.
  • Shopify has made it easier to implement video and 3D models in a store. There has also been the addition of 11 languages along with multiple currencies in Shopify Payments.

The Bottom Line On SHOP Stock

Shopify has done a great job of capitalizing on the megatrend of ecommerce. By creating an easy-to-use and affordable platform, the company has been able to amass a base of over 800,000 businesses across 175 countries.

Yet I think investors should still be cautious with SHOP stock ahead of earnings. Let’s face it, the shares are already factoring in the good news — and then some. Consider that the valuation is a hefty $35 billion and the multiple is a steep 30 times sales. Interestingly enough, Wall Street’s price target on SHOP stock is $322, which assumes only 2.5% upside.

The competition is also getting more intense. SHOP has to fight against rivals like Salesforce.com (NYSE:CRM), Adobe (NASDAQ:ADBE) and even Square (NYSE:SQ). They all have tremendous resources and large distribution footprints, as well as diverse product offerings.

So for now, it’s probably better to be patient and wait for a better price on SHOP stock.

Tom Taulli is the author of the upcoming book, Artificial Intelligence Basics: A Non-Technical IntroductionFollow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.

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