Up-and-comer Shopify Inc (US) (NYSE:SHOP) is chipping away at well-entrenched rivals such as Amazon.com, Inc. (NASDAQ:AMZN) and eBay Inc (NASDAQ:EBAY). Contrary to popular belief, the era of e-commerce startups and newcomers to the business of selling physical goods online hasn’t been ended by the kings of e-commerce. Shopify stock is up more than 300% since the end of 2015 as investors began to believe in the story.
As is the case with all young companies though, the bullish part of the story isn’t where SHOP is, but where it’s going.
The transitional nature of this name, in turn, has made it something of a battleground, putting Tuesday morning’s scheduled third-quarter report in the spotlight.
Here’s what investors need to know headed into the news.
Shopify Earnings Preview
For the quarter ending in September, analysts expect Shopify to report a loss of 1-cent-per-share on $165.6 million in revenue. The company turned $99.6 million in sales into a loss of 11-cents-per-share of SHOP stock in the same quarter a year earlier.
Growth has never been a problem for Shopify. Sales have been trending firmly higher for the company since it began facilitating the establishment of online stores for would-be e-commerce startups in 2006. And, although it is still in the red, the bottom line finally appears to be en-route to measurable progress, with the pros projecting a swing to a profit of 21-cents-per-share next year versus a likely loss of 4-cents-per-share of Shopify stock this year.
SHOP Stock Under Attack
Meeting those expectations, and more so beating them, could be a hugely important victory lap for the company after it came under fire in early October. That’s when Andrew Left of Citron Research — which claims to hold a short position in Shopify stock — argued the company’s advertising promises of “becoming a millionaire” also “completely violates every FTC rule imaginable.” Left goes on to state SHOP stock is overvalued, underscoring his call for the stock’s tumble to as low as $60 per share.
To be fair, Citron prompts some valid questions and concerns. Shares also tumbled 24% over the course of the few days following the release of the semi-exhaustive look at Shopify.
On the other hand, investors have certainly paid a much higher price in the past for stocks of companies with weaker growth prospects than Shopify presently has, and of companies that are nowhere near making the turn towards profitability that Shopify is about to make.
Investors recognize this too, reversing the pullback. SHOP stock bounced 20% from its low seen following the release of Left’s bearish call, and it is still testing the waters of higher highs.
Do or Die Time for Shopify Stock
Despite the bounceback and the fact that analysts still collectively say Shopify stock is worth $118.02-per-share (versus its current value of $107.27), Tuesday morning’s report is an important one for the company in that it will be the first time it has a chance to answer the questions Citron Research raised.
It will also be the first time the company has a chance to prove it can grow the top line without also deepening its loss … though Q4’s projected profit of 3-cents-per-share will make a far more convincing bullish argument.
Even the possibility of greater fiscal insight, however, has proven contentious. Some are hoping the company divulges how many of its users/customers transact more than $100,000 worth of business per year using its platform, as well as a look at how many members end up abandoning the service compared to how many sign up in any given year. As one unnamed shareholder countered, however, “they don’t need to give away state secrets just because of a self-interested short seller.”
One thing is for sure either way though — a whole lot of investors are going to be watching this report a whole lot more closely than they normally might.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities. You can follow him on Twitter.