A few weeks ago, I told readers that Shopify (NYSE:SHOP) was a strong buy before its first-quarter earnings report. I said that SHOP stock is benefiting from the e-commerce frenzy that was boosted even more by the novel coronavirus.
Now that we’ve had some time to digest Shopify’s earnings numbers, are there any reasons to reconsider my call on SHOP stock?
Not at all. In fact, had you bought SHOP when my previous story was published, you’d be sitting on a 12% gain right now. And year-to-date, the stock is up an astounding 93%.
This is one stock that doesn’t sit still. Let’s take a closer look.
Shopify at a Glance
Shopify is a Canada-based e-commerce solutions provider that works with small- and medium-sized companies to sell good and online products. It currently supports more than 1 million businesses and has a reach of 175 countries.
Last month, it rolled out its newest feature, a consumer-focused shopping app called Shop, which allows customers to sift through recommended products and buy them with a one-click process. Shop is an update and rebrand of its Arrive app, which allowed users to track packages from SHOP merchants and other retailers.
The app rollout ties in perfectly to how consumers are shopping these days — avoiding brick-and-mortar stores and capitalizing on the convenience of mobile devices to get personalized shopping experiences that are powered through AI. In a statement, SHOP says the app will “bridge the gaps in online shopping.” More specifically, Shopify “are setting out to reimagine the online shopping experience for customers — to provide them greater convenience, transparency, and personalization. As a result of social distancing and stay-at-home measures, customers have become more reliant on online ordering than ever before as it becomes more challenging to stay connected to the brands they love.”
Absolutely, the coronavirus pandemic has changed how people shop. Through the week of May 12, e-commerce sales are up 49% since late February, according to Signifyd E-commerce Pulse data.
And even as brick-and-mortar stores are beginning to reopen, customers appear much more likely to rely on e-commerce solutions rather than going out in public. A Harris Poll released in early May shows that 89% of shoppers surveyed expressed concerns about shopping in physical stores.
That bodes well for SHOP stock heading headed into the rest of 2020.
Shopify’s Earnings Report
Everything looked good for Shopify as it headed into its first-quarter earnings statement. While the company withdrew its guidance, citing a downturn in March, those fears were short-lived.
In fact, Chief Technology Officer Jean-Michel Lemieux took to Twitter in mid-April to boast about Black Friday-levels of traffic on SHOP’s platform:
“It won’t be long before traffic has doubled or more. Our merchants aren’t stopping, neither are we. We need to scale our platform.”
While the tweet was effusive and didn’t move analysts’ opinion, I certainly thought it was reasonable to expect strong growth for the quarter, given the trends in e-commerce.
Wall Street was looking for an earnings loss of 18 cents per share, but Shopify confounded them by posting an earnings-per-share gain of 19 cents. Revenue of $470 million also exceeded Wall Street’s estimates of $443.1 million and was 46% better than the same quarter a year ago.
SHOP stock jumped nearly 7% on the report, which was a nice return for anyone who took my advice a month ago.
And now the analysts are coming on board.
“Overall, the report confirms the recent bullish narrative that Covid-19 has ultimately been a net tailwind for Shopify, with merchant adds and GMV trends still topping expectations despite the pandemic,” Raymond James analyst Brian Peterson wrote in a note to clients.
The Bottom Line on SHOP Stock
E-commerce was taking a huge bite out of the brick-and-mortar industry even before the coronavirus pandemic. In fact, Covid-19 is merely hastening the inevitable decline of 20th-century retail stores.
While I’m not predicting that SHOP will gain another 93% in the next five months, Shopify retains its strong buy rating in my Portfolio Grader, where it has an ‘A’ grade.
Louis Navellier had an unconventional start, as a grad student who accidentally built a market-beating stock system — with returns rivaling even Warren Buffett. In his latest feat, Louis discovered the “Master Key” to profiting from the biggest tech revolution of this (or any) generation. Louis Navellier may hold some of the aforementioned securities in one or more of his newsletters.