The recent 10.4% decline in Shopify (SHOP) shares over the past month has investors on edge. Year to date, SHOP shares have taken a hit, losing 23.7%, trailing behind the Zacks Computer & Technology sector’s gain of 17.1% and the S&P 500’s 13.3% rise.
Shopify attributes its downward trend to challenging macroeconomic conditions and persistent inflation. The e-commerce growth rate is moderating, shifting towards pre-COVID levels as consumer footfall increases in physical stores, unsettling investors.
Despite these challenges, Shopify remains optimistic, foreseeing high teens revenue growth in the second quarter of 2024 and mid-twenties revenue growth when accounting for divestiture headwinds.
Analysts estimate second-quarter 2024 revenues to reach $2 billion with a growth rate of 18.32% year-over-year. Earnings are anticipated at 20 cents per share, indicating a marginal decrease over the past month.
Shopify Inc. Price and Consensus
The company expects a sequential 50 bps decrease in gross margin. Operating expenses, as a percentage of revenues, are projected to range between 45% and 46%.
Year-to-Date Performance Chart
SHOP stock’s performance year-to-date has sent ripples throughout the investing community, fueling uncertainty and speculation.
SHOP Stock to Ride Higher on Strong Merchant Base
Despite recent setbacks, Shopify’s long-term outlook appears promising, fueled by a robust merchant base and an expanding partner network.
The company’s cloud-based platform is well-positioned to cater to the evolving needs of merchants amid the changing e-commerce landscape. Merchant-friendly tools like Shop Pay and Shopify Capital are attracting new business amidst economic pressures.
In the first quarter of 2024, Shop Pay processed $14 billion in Gross Merchandise Volume, highlighting its significance in the company’s revenue stream.
Expanding Partner Base: a Key Catalyst for SHOP Stock
Shopify’s collaboration with industry giants like Amazon, Target, and others signals a bright future ahead. By divesting non-core businesses and strengthening partnerships, Shopify aims to fortify its position in the market.
The company’s strategic international expansion, along with alliances with key players like Avalara and Manhattan Associates, underpin its growth trajectory.
Shopify Trading at a Premium
Although Shopify is trading at a premium compared to industry peers, the company’s growth potential remains compelling. Investors looking for a long-term growth play may view the current dip as an opportunity to buy in.
Conclusion
While the near-term challenges persist, Shopify’s strong fundamentals and growth prospects position it favorably in the market. The recent dip in stock price offers a potential entry point for investors eyeing long-term gains.
Shopify’s Zacks Rank #1 (Strong Buy) and Growth Score of A underscore its solid investment appeal, backed by a solid track record and strategic initiatives.