What Should Investors Expect From Shopify Inc (US) Stock Earnings?

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Shopify - What Should Investors Expect From Shopify Inc (US) Stock Earnings?

Next Tuesday, Shopify Inc (US) (NYSE:SHOP) will issue its third quarter earnings report. And it could be an important one. Keep in mind that SHOP stock has been the target of controversial short seller, Andrew Left. His firm, Citron Research, has slapped a $60 price target on the shares. This assumes a grueling 41% drop in Shopify stock!

What Should Investors Expect From Shopify Stock Earnings?

But before going into more details on this short-sale play, let’s first get a rundown on the expectations for Shopify earnings. The Street is looking for a 67% increase in sales to $165.63 million and earnings per share of -$0.01, up from a loss of 11 cents during the same period a year ago.

Here is also some notable Shopify stock news for the quarter:

  • The company announced that it now powers over 500,000 business across 175 countries. This means that the average annual growth rate has been 74% since 2012. And during this period, the merchants have logged more than $40 billion in sales.
  • Shopify has entered a partnership with DHL, which is the top global express services provider. The deal will allow e-commerce merchants to ship their products at lower rates.
  • As a sign of its strong growth, Shopify plans to grow its full-time workforce by 300 to 500 over the next few years in Waterloo, Canada. The main focus will be on Shopify Plus, which is targeting larger customers.

SHOP Stock and Short Selling

Regarding Left, his analysis is definitely serious. He thinks the merchant base may be nowhere near the 500,000 level. In fact, Left has implied that Shopify is some type of multilevel marketing scheme and that it could be the target of the FTC!

Now it is true that Left has made some spot-on calls, as seen with his short on Valeant Pharmaceuticals Intl Inc (NYSE:VRX). Because of his independent research, he was able to uncover an undisclosed relationship with a third-party distributor that cast doubt on the company’s disclosures.

But then again, Left has had a good number of flubs as well. So yes, it is probably a good idea to take Left’s contentions with a grain of salt.

Besides, his claim about Shopify’s marketing being misleading does seem kind of weak. According to InvestorPlace’s James Brumley:

“Is a vision of a healthy cancer patient within a television commercial for a cancer drug some sort of unspoken guarantee of long-term survival? Does a young man that uses the Axe brand of personal-hygiene products actually expect to be besieged by young women, as depicted in Axe’s television commercials? The answer to all these questions is, of course, no. The FTC tolerates the imagery simply because it knows it has to give consumers at least a modicum of credit in distinguishing the difference between a contract and a commercial.”

Bottom Line on Shopify Stock

Since Left’s comments, Shopify stock has actually recovered a third of its losses. So does this mean investors should jump back in?

Well, I’d be cautious. SHOP stock seems to have already baked in a lot of the growth story. After all, the shares have logged an impressive return of 140% this year. This puts the price-to-sales multiple at a hefty 20x. By comparison, Wix.Com Ltd (NASDAQ:WIX) trades at 8.6x, and Godaddy Inc (NYSE:GDDY) sports a multiple of only 4x.

What’s more, Left will probably have something to say after the Shopify earnings report, and it won’t be good. And as seen already, the stock price has shown that it can be sensitive to bad news.

Tom Taulli runs the InvestorPlace blog IPO Playbook and is also the author of High-Profit IPO StrategiesAll About Commodities and All About Short SellingFollow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.

Tom Taulli is the author of various books. They include Artificial Intelligence Basics and the Robotic Process Automation Handbook. His upcoming book is called Generative AI: How ChatGPT and other AI Tools Will Revolutionize Business.


Article printed from InvestorPlace Media, https://investorplace.com/2017/10/shopify-inc-shop-stock-earnings/.

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