If there's one thing we've learned from the last six months, it's that e-commerce is incredibly resilient as long as the power and the internet are up and running. E-commerce pretty much doesn't care about pandemics, except as far as people need to be in place fulfilling orders. It's a point Amazon (NASDAQ:AMZN) gained on substantially in the last few months, and it's a point that Shopify (NYSE:SHOP) has been riding all the way to the bank lately, as its third-quarter reports revealed.
Huge Gains All Across the Board
Shopify managed to land an extra 4% in pre-market trading, though it's given a lot of those gains back in recent trading as some profit-taking likely kicked in. It made those gains with good reason, too; the company brought in net income of $191.1 million for the third quarter, which on a per-share basis works out to $1.54. Considering that last year at this time the company posted a loss of $72.8 million, it's literally a night-and-day difference.
Adjusted earnings turned out equally well for the company, as it posted gains of $1.13 per share, as compared to the $0.29 loss per share last year at this time. Given that the FactSet consensus was expecting a $0.52 per share adjusted earnings turn out, the better-than-double Shopify actually posted almost certainly came as welcome news to investors. Sales made a nice climb too, as the company brought in $245.3 million in subscription revenue, along with $522.1 million in revenue connected to merchant solutions.
A Multiple-Driver Environment
Driving these impressive gains was the frantic move to e-commerce seen late in the first quarter. The government-mandated coronavirus shutdowns left companies with little option but to sell online, if they wanted to sell anything at all, and that prompted many firms to turn to Shopify.
Shopify let no grass grow under its collective feet, as in the third quarter, it brought out a new option designed to make online shopping more attractive. The move gave at least some merchants the ability to offer installment payments to their customers, which allowed customers to effectively buy more, even with less in their collective wallets as they could pay in small blocks. With time on their hands, stimulus checks in hand, and unemployment checks boosted by several bonuses, customers shopped, and Shopify helped make it happen.
The Analysts are a Bit Shaky
It was a great quarter for Shopify, absolutely, but there are some soft spots on Shopify's forward path. The current consensus rating for the company, based on our latest research, is a “hold”, with two “sell” ratings, 16 “hold”, and 11 “buy”. That's up somewhat from recent days, as even 30 days ago, there were only 10 “buy” ratings, but it's not too big a swing. The price target has been trending steadily upward, however, up to a consensus of $1,021.59. Given that the company is currently trading at $1,012.02 as of this writing, there's still some upside room left to go.
A little under a month ago, we were calling this a stock with “plenty of room to run,” and run it has, though sadly not in a straight line. The price now is roughly where it was this time last month, and it's been as high as $1,106.59 in the interim.
A Less Certain Future
Here's where things get a bit interesting, though. The company didn't actually put out a fourth-quarter outlook, and this should have been a major opportunity. With the holiday shopping season pretty much now in full swing—especially since the chances of seeing a Black Friday sale this year are slim to nil thanks to the coronavirus and its assorted responses—online shopping is likely to be a priority for customers all over. It may be, therefore, that some of Shopify's best gains are yet to come.
However, it's getting a bit shaky. Much of Shopify's growth may already be baked in, as new companies can't join at the same rate they did back in March and April; they're already in. Meanwhile, Shopify recently announced plans to partner with a popular video sharing tool to help those videomakers move merchandise. The bad news? It's beleaguered TikTok, which has previously been called both a “hot brand” and a national security issue. With a deal that would have seen Walmart (NYSE:WMT) buy in on TikTok currently in deal limbo, the value of a TikTok connection may be limited.
The gains seen so far at Shopify have been dazzling. Whether or not these gains are sustainable is unclear, but it's obvious that Shopify isn't resting on its laurels and is working to make new gains happen. Given the high price of a share of Shopify, there's even a possibility—though a bit remote as no one's even mentioned it yet—that it may follow Apple (NASDAQ:AAPL) and Tesla (NASDAQ:TSLA) into a stock split down the line. Staying in the hunt with Shopify, therefore, could prove a very good idea in the months ahead.
Companies in This Article:
