Shopify Inc (NYSE:SHOP) is an e-commerce company that offers a suite of tools for small and medium-sized enterprises to digitize their businesses and establish an online presence. It also provides sales, marketing, stocking, and logistics services to help these companies set up their businesses.
Using Shopify businesses can operate an independent online presence through a website or social media instead of having to sell their products through platforms like Amazon, eBay, etc. Shopify operates on a tiered subscription model.
Shopify was listed on the New York Stock Exchange in 2015 at just $17 and has since become a stock market hero. In July 2020, the stock broke above the $1,000 mark and has since been hovering around the same range.
The pandemic boosts Shopify
While the pandemic brought most businesses to a near standstill, Shopify is one of the few companies that managed to not only survive but thrive.
The virus has taken a severe toll on physical retail business as customers stay indoors due to fears of contamination, thus forcing a massive number of businesses to build an online presence.
Small and medium-sized businesses have been attracted to Shopify because it helps them build a much more personalized customer experience compared to a simple product listing on eBay or Amazon. A Shopify site gives the business owners a much larger creative space to market their product, thus giving them a chance to build a unique customer experience that is not possible on sites like Amazon and eBay.
Shopify now supports over a million businesses in 175 countries. It has also received a very positive response to its Shopify Fulfillment Network which provides an end-to-end logistics solution for merchants. (Forbes)
Last year was a breakout year for the company, and investors believe that this fiscal will be even better.
The company’s biggest customers are small businesses, and the disruption caused by the pandemic has spurred a wave of new small business formations according to the US Census Bureau. (United States Census Bureau)
The company reported a total revenue increment of 97% in the last quarter and market analysts expect an even better quarter when earnings release next week. The company also reported a 21% increase in Monthly Recurring Revenue last quarter.
Analysts expect that the company will report $653 million in revenue this quarter and an EPS of $0.51. Analysts expect similar growth this quarter as many new clients signed by the company were under a free-trial period then and some of them should become revenue-generating customers this quarter. Shopify also has a very strong balance sheet with $4 billion in cash and securities. (Motley Fool)
Investors should expect further northward movement for the stock if the company delivers another estimate beating quarter, but an underwhelming earnings report could induce a significant correction given the stock’s massive rally this year.