After a steep, late summer decline followed by an autumn of largely treading water, investors once again gained confidence in Shopify (NYSE:SHOP) during the holiday shopping season. The shares of the Canadian e-commerce company rose 59% from early November to its then-record-high close of $469.25 on Jan. 23. The shares then went on a weak stretch for a few days, pulling back to the $450 area. But this week, SHOP stock has rallied again, reaching a new record of $480 yesterday.
However, the company is due to report its fourth-quarter and full- year 2019 earnings on Feb. 12. The question is, can Shopify stock keep rallying in the wake of its results? Or are SHOP’s earnings going to disappoint investors on Feb. 12, causing SHOP stock to pull back again?
The E-Commerce Sector Had a Great Holiday Season
The big story this quarter is the holiday shopping season. The holiday season is critical for retailers and can make or break their year. The period between Thanksgiving and the end of the year can account for 30% of a retailer’s annual sales. For an e-commerce platform like Shopify — which makes a good chunk of its revenue by charging a percentage of its customers’ sales — the holiday quarter is equally important.
In conjunction with its Q3 earnings report, Shopify provided Q4 guidance. The company expects its Q4 revenue to be between $472 million and $482 million, representing a year-over-year increase of between 37% and 40%.
During the 2019 holiday period, e-commerce sales were solid. Cyber Monday’s sales of $9.4 billion shattered the record for the biggest online shopping day in U.S. history. Shopify announced that the merchants on its platform had also broken records, ringing up over $2.9 billion of sales globally during the Black Friday/Cyber Monday weekend.
Those Black Friday and Cyber Monday numbers helped push Shopify stock higher in December. And despite a shorter holiday shopping season in 2019 than in 2018, the National Retail Federation (NRF) reported that U.S. online sale during the shopping season had jumped 14.6% YoY to $167.8 billion.
Amazon’s Earnings Will Provide a Hint of What to Expect
Shopify obviously isn’t in the same league as Amazon (NASDAQ:AMZN). However, SHOP does provide an e-commerce platform that competes with the vendors that sell their products on Amazon’s marketplace.
Amazon will be reporting its Q4 earnings today after the market closes, and the holiday sales numbers for its marketplace vendors will provide a hint of what to expect from Shopify.
But Amazon’s numbers will be open to interpretation, of course. For example, higher overall e-commerce spending could cause Amazon’s marketplace numbers to beat expectations. But, on the other hand, some of Amazon’s sales may have come at the expense of its competitors like Shopify. In any event, analysts will use Amazon’s numbers to forecast the results of competing e-commerce companies, including Shopify.
The Bottom Line on Shopify Stock
Analysts aren’t entirely certain of what to expect from the company at this point.
When it reported its results for the 2018 holiday quarter, SHOP delivered a big earnings surprise, reporting earnings of 26 cents per share, compared to the 21 cents per share analysts, on average, were expecting. However, even though its revenue jumped 54% YoY during that quarter, its growth decelerated for the fourth straight quarter. That was enough to spook investors and send Shopify stock to a 2% loss on the day. Based on SHOP’s guidance, which calls for maximum YoY growth of 40%, it looks like Q4 will be yet another quarter of declining revenue growth for SHOP, and that could weigh on Shopify stock.
According to CNN Business, analysts’ average rating on Shopify stock recently changed from “buy” to “hold.” Analysts, on average, are looking for revenue at the upper end of the company’s guidance and EPS of 23 cents. If the company’s results come in below those levels, SHOP stock could be on its way to the analysts’ median 12-month price target of $400.
As of this writing, Brad Moon did not hold a position in any of the aforementioned securities.
