Shopify Stock Has Big Upside
What should investors do about Shopify Inc (NYSE:SHOP)? A year ago, this author had a totally different opinion from the one that follows below. It was, in fact, just a year ago that Shopify, an online shopping creation platform that allows users to set up their own Internet stores, went public. “Been there, done that,” said the many who doubted Shopify stock, myself included. But the bears were wrong about the aptly named SHOP stock.
Is Shopify Stock the Next Amazon?
Shopify’s premise sounded too simple. It promises “a complete ecommerce solution” that allows users to organize items and create a storefront based on an easy-to-modify template. It even includes credit-card-payment and order-tracking software. Yet, it’s that very simplicity that works, evidently attracting many customers, because SHOP stock has performed better than expectations.
The reason that expectations were low in the first place came down to this: by helping thousands of people open their own online retail space, Shopify was not just competing against such domain hosting companies as Godaddy Inc (NYSE:GDDY), it was going to take on the likes of Amazon.com, Inc. (NASDAQ:AMZN). And Shopify is not even in Silicon Valley, where it can attract the talent that rotates from one successful tech firm to another, it’s located in Ottawa, Canada.
From its initial public offering (IPO) in May 2015 to the present, SHOP stock has gained over five percent. Shopify shares suffered last Christmas amid valid retail sector concerns but, year-to-date, they have gained 56.5% and over 95% in the past six months. That is since the big February crash. This kind of resilience gets attention. The evident conclusion is that Shopify is in Wall Street to stay.
The online shop platform experienced a “baptism of fire” in its first year on Wall Street, and has come out on top. In its recent Q2 earnings announcement, Shopify even boasted about its $179 million in cash. Revenue has risen 93% year over year. (Source: “Shopify has become the go-to platform for emerging e-tailers,” Business Insider, August 6, 2016.) The next realistic stock target price, as none other than Credit Suisse analysts suggest after resuming coverage, is $46.00. (Source: “Credit Suisse has resumed coverage with Outperform rating and price target of $46 on Shopify stock,” The Country Caller, August 18, 2016.)
The Q2 2016 earnings report positions Shopify as a go-to platform for emerging “e-tailers.” Total revenue for the company reached over $86.0 million during Q2, marking a 93% year-over-year (YoY) increase. Note, however, that Shopify has not posted a profit yet. Still, the company claims that earnings will go in the black in the fourth quarter of 2017. Credit Suisse is forecasting a loss of $0.15 per share in 2016 and $0.02 next year. (Source: Ibid.) This shows a nice linear progression that makes the course of SHOP stock easy to follow.
The Bottom Line on Shopify Stock
Shopify says it will use its revenues to fund growth initiatives including the development of new features, marketing spending to meet its commitments to its partners, hiring staff, and improving service. Shopify also wants to invest in improving its network to support the growth of its subscribers’ lists. (Source: “Shopify’s Offering Is ‘More Cash For Its Shopping Cart,’ Credit Suisse Says,” Stockhouse, August18, 2016.)
Shopify may have an easy-to-understand model, but its technology features are sophisticated solutions from a scalable cloud to international growth potential. It’s not hard to see why so many are bullish on Shopify.