Headquartered in Ottawa, Canada, Shopify (NYSE:SHOP) is a well-known and well-regarded multi-channel e-commerce platform. Millions of shares of SHOP stock are traded each and every day. And these traders have bid the Shopify stock price up from $25 to its current price of more than $300.
With their second-quarter earnings announcement coming up on Thursday, August 1, 2019, critics are ready to pounce on SHOP stock as an overpriced asset. Are they justified in this assessment, and can Shopify keep its cool as earnings season heats up?
With Shopify Stock, High-Priced Doesn’t Mean Overpriced
As I see it, there are three solid reasons to hold Shopify stock through earnings. Sure, earnings announcements can cause ticker volatility, but SHOP has just as much upside potential as downside risk.
Long-term investors shouldn’t forget that Shopify remains a pivotal player in multi-channel e-commerce: their platform powers over 800,000 businesses in approximately 175 countries. Many people consider Shopify’s cloud-based SaaS solution the only serious option for retailers. Moreover, the company’s platform scales readily across mobile, web, social media, and brick-and-mortar locations.
So yes, the SHOP stock price is above $300, but that doesn’t necessarily make it expensive. The average analyst price target is $325. Evidently, the experts don’t mind paying the $300 price tag as the earnings announcement approaches.
Can’t Argue with the Numbers
My second reason for holding onto SHOP stock is based on simple math: after poring over the company’s first-quarter results, there’s little reason to be skeptical of Shopify’s track record. Read ’em and weep: subscription revenues were up 40% year-over year, while merchant solutions increased year-over-year by an eye-popping 58%.
On top of all that, Shopify’s total revenues were a robust $320.5 million, up 50% YOY. The first-quarter results also revealed that 40% of eligible merchants now use Shopify’s shipping platform: now that’s what I call market share! Given these numbers, it’s hard not to put Shopify in the same category as industry leaders like Amazon (NASDAQ:AMZN) or Salesforce (NYSE:CRM).
A Big Plus
The third factor I’ll be adding to the plus column is Shopify Plus. This is the company’s e-commerce platform subscription for high-volume merchants. Shopify Plus has been a key catalyst for Shopify’s recent growth as a company. To no surprise, it’s also provided a launching pad for the SHOP stock price.
During the second quarter of this year, Shopify Plus represented 26% of the company’s $44.2 million in monthly recurring revenue. That’s a solid increase over the 22% of monthly recurring revenue in the year-ago quarter represented by Shopify Plus.
During the company’s first-quarter earnings conference call, COO Harley Finkelstein observed that the strong momentum in Shopify Plus subscriptions benefited from “a strong sales team that is constantly improving as well as a strong mix of upgrades.” I expect the company to continue their focus on Shopify Plus, and rightfully so: it’s been a key driver of sales and revenues for over a year, with no signs of slowing down.
The Bottom Line on SHOP Stock
Shopify’s strong first quarter of the year, according to CFO Amy Shapero, reflected “the diversity and strength of our growth drivers and the solid execution of our strategy.” I tend to concur with this sentiment. Even as an incorrigible skeptic, I can’t deny Shopify’s compelling revenue and sales figures as of late.
And so, the downside potential of the imminent earnings announcement won’t scare me away from SHOP stock. Instead, I’ll stand behind the e-commerce giant. And I’ll keep my fingers crossed as the company finally reveals its next set of numbers.
As of this writing, David Moadel did not hold a position in any of the aforementioned securities.
