Shopify's Stock Prices Climb on Positive Expansion Projections. Is the Purchase Opportunity Already Past?
It's been a thrilling journey for Shopify (SHOP shedding -8.19%) shares this year, but since summer, the graph has been pointing upwards. Following the company's impressive third-quarter report released on Tuesday and their positive outlook, the stock hit a fresh 52-week high. However, it's still a far cry from reaching its all-time high achieved in 2021.
By this point in time, Shopify's shares have climbed by more than 40% for the year, leading to the natural question - has the time to buy passed? Let's dive deeper into Shopify's recent performance and future prospects to see if it's still worth investing in.
Sustained growth
In the third quarter, Shopify's revenue shot up by 26% compared to a year ago, reaching $2.16 billion. This marked a significant speed-up from its 21% growth rate in Q2, when accounting for the 2023 sale of its logistics business. The revenue numbers also managed to surpass analyst forecasts for $2.09 billion, as calculated by FactSet.
GMV (Gross Merchandise Volume) saw a jump of 24% to $69.72 billion, while B2B commerce GMV skyrocketed by 145%. International GMV grew more than 30%, with cross-border GMV accounting for around 14% of the total GMV. Gross payment volume increased by 31% to $43 billion, as more merchants opted for Shopify Payments. Total merchant solutions revenue increased by 26% to $1.55 billion, and subscription revenue climbed 26% to $610 million, thanks to more merchants and enhanced pricing.
Gross margin slipped from 52.6% to 51.7%, but gross profits still rose by 24% to $1.12 billion. Shopify produced $421 million in free cash flow during the quarter and concluded the period with a net cash and marketable securities balance of $4.9 billion, with debt of $917 million in the form of a convertible note.
For Q4, Shopify projected a revenue growth in the mid-to-high 20s percentage range. It anticipates its gross profit to increase at a similar pace as it did in Q3, and its free cash flow margin to remain around 19%.
Is it too late to buy the stock?
Despite the volatility in Shopify's stock value, particularly around its earnings reports, the company's financials have stayed relatively consistent.
For each of the first three quarters this year, the revenues have grown between 25% to 29%, taking into account the logistics business divestment.
Shopify is witnessing robust growth not just among small e-commerce businesses, but also across various merchant categories and sizes, both online and offline, and in markets worldwide. This encompasses B2B and enterprise clients. It continues to innovate and unveil new tools to assist merchants in managing their businesses, including a low-code workflow automation app and tax code compliance tools.
More merchants keep leaning towards Shopify's payment services, as Shop Pay handled $17 billion in GMV in Q3, accounting for over 60% of the total GMV. The boost in penetration is a massive growth engine and offers the company a chance to share in its clients' growth and triumph.
Shopify now trades at a forward P/S ratio of 13.7, based on analyst predictions for 2025. Although this multiple is higher than it has been for a while, it falls short of the ratio the stock traded at back in 2021.
Shopify remains a force to be reckoned with, boasting strong and consistent revenue growth in the mid-20% range. Its balance sheet is rock-solid, with substantial cash reserves, and its free cash flows are healthy.
In my opinion, the stock is nearing fair value, so chasing it wouldn't be advisable at this moment. However, I believe it will continue to thrive as a long-term investment, and I'd consider purchasing shares during price dips.
Based on Shopify's consistent revenue growth and robust financial performance, some investors might be wondering about the potential for further gains in its stock price. If you're considering investing in Shopify, it's crucial to consider both the company's short-term and long-term prospects.
Given Shopify's strong financials and continuous innovation, many finance experts advocate that it could be a smart addition to a long-term investment portfolio. To seize potential investment opportunities, keeping a close eye on its price fluctuations and any significant changes in its financial reports could be beneficial for those interested in investing in this tech giant.
