Shares of Shopify (SHOP) stock are shooting higher on Thursday, up as much as 19% in afternoon trading, after the company announced major partnerships with both Amazon (AMZN) and Facebook (FB).
The efforts have the potential to drive even more dramatic increases in Shopify’s revenue, which has been growing at a blistering pace on its own accord in recent years.
In 2012, the cloud-based e-commerce platform had revenue of just $24 million. After two consecutive years of more than doubling sales, SHOP posted revenue of $105 million in 2014.
Even before these recent tie-ins with FB and AMZN, analysts expected Shopify to increase revenue another 74% this year to $182 million.
SHOP stock may catch a few upgrades and upward revisions in the wake of its new partnerships, though, which could be game-changing developments for the young company.
The AMZN and FB Deals
Shares of SHOP stock hit the market back in May with an initial public offering priced at $17 a share. After today’s gains, the stock price has nearly doubled from those levels, currently trading at a valuation of about $2.5 billion.
That valuation may continue to climb, especially after Amazon’s decision earlier this year to shutter its Shopify competitor, Amazon Webstores. That was already good news for SHOP stock, but today AMZN recommended that users of Amazon Webstores migrate over to Shopify — a valuable endorsement from the country’s most powerful e-commerce company.
Shopify specializes in software that allows small businesses to create online storefronts, facilitating things like payment processing and checkout. The company will begin allowing its merchants to use AMZN payments and fulfillment services after the endorsement.
But owners of SHOP stock know that Amazon isn’t the only tech giant putting their confidence in the company. Shopify and FB have been working together on the “Buy” button since earlier this year, and that integration will actually intensify in the coming weeks, as Facebook rolls out a new “Shop” section in Facebook Pages. You guessed it: Shopify merchants will be able to sell their wares directly through FB now.
This should do wonders for distribution, and both the AMZN and FB partnerships should give Shopify a more robust and powerful platform. Not only should merchants be able to monetize more easily, but the moves should attract more users to the Shopify platform. That means more revenue for Shopify and, all things being equal, higher prices for SHOP stock.
In fact, Shopify merchants may have still more opportunities to increase distribution, with a rumored partnership with Twitter (TWTR) in the works that would allow merchants to sell directly through the social media site with its own “Buy” button.
In short, SHOP stock should continue to exhibit enormous revenue growth as these partnerships go live. The only problem from an investor’s perspective is figuring out to what degree that growth is already built into SHOP’s stock price.
After all, the company still isn’t profitable, and is even expected to lose 17 cents per share in 2016. And at its current price-to-sales ratio of 15, SHOP stock isn’t cheap by any stretch of the imagination.
Despite the deals with AMZN, FB and TWTR, I’d be careful buying shares at these prices. It’s a great company but it’s stock needs to come back down to earth for it to start looking attractive.
As of this writing John Divine held no positions in any of the stocks mentioned. You can follow him on Twitter at @divinebizkid or email him at editor@investorplace.com.
