Shares of e-commerce giant Shopify (NYSE:SHOP) are popping higher on Tuesday early afternoon, cutting across a lackluster session on Wall Street. Specifically, management just announced the completion of its sale of Shopify Logistics to Flexport, a leading tech-driven global logistics platform. SHOP stock is gaining about 6% on the news.
According to the accompanying press release, Shopify completed the sale in accordance with the transaction agreement dated May 3, 2023. Under the deal, the e-commerce specialist will receive stock representing a 13% equity interest in Flexport. This investment is “incremental to its existing equity interest in Flexport.”
According to the press release, the transaction “takes the logistics solution Shopify has been building and places it in the hands of a trusted and mission-aligned partner, Flexport.” Shopify management will provide more details regarding the impact of the sale during the company’s upcoming second-quarter disclosure.
SHOP Stock Rises on Streamlining Implications
Shopify first announced the sale of its logistics business in its Q1 2023 earnings release. According to Seeking Alpha, management initially wanted to focus on developing an “asset-light” and “less capital-intensive logistics infrastructure, culminating with the Deliverr acquisition in 2022.” However, analysts did not take kindly to that deal, which in their view clouded SHOP stock regarding free cash flow (FCF) profitability.
Fundamentally, then, management issued a U-turn and moved away from further expanding its logistics infrastructure. Instead, Shopify appears to be seeking to recover its profitability metrics. As Seeking Alpha notes, management recently updated the company’s FCF outlook for fiscal 2023, stating that Shopify “plans to achieve free cash flow profitability for each quarter of 2023.”
That’s a conspicuous departure from prior consensus estimates, which called for negative FCF through fiscal 2024. While management promised more details to come during the Q2 conference call, it’s evident that Shopify is emphasizing improved margins.
E-Commerce Sentiment Rises
Currently, data from Fintel indicates that the put/call ratio for SHOP stock in the options market stands at 0.98. On paper, this ratio indicates relatively neutral sentiment, suggesting near-equal demand for both calls and puts. However, because the U.S. equities market has an upward bias, a ratio of 0.7 typically delineates bullish and bearish sentiment.
That said, Fintel’s screener for options flow indicates predominantly bullish for SHOP stock for the June 6 session, as of this writing. For example, the most recent trade involves call purchases in a multi-sweep transaction.
Notably, other e-commerce enterprises are also enlivening a soft Tuesday on the Street. Industry stalwart Amazon (NASDAQ:AMZN) is gaining about 1% while Overstock.com (NASDAQ:OSTK) is soaring more than 11%.
Why It Matters
Over the past three months, analysts peg SHOP stock as a consensus “moderate buy.” However, within the last 30 days, analyst views have shifted rather poorly. Among five expert opinions, three rated SHOP as a “hold” while two came in as “sell” ratings. Further, the average price target for shares currently sits at $61.65, implying almost 3% downside risk.
On the date of publication, Josh Enomoto did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
