It's time for Shopify (NYSE:SHOP) to step up and earn its recent gains. The fast-growing provider of digital storefronts hit more all-time highs this week, leading us to next week when it will report fresh financial results.
Analysts are holding out for another big quarter of growth come Tuesday morning. Wall Street sees Shopify's revenue rising 55%, to $234.6 million. Shopify is expected to post an operating loss and an adjusted net loss, but the red ink should narrow from the prior year's showing. The stage is set for one of the market's hottest stocks since the start of last year, and it's understandable if investors are a little nervous.
Big gains come with big expectations
Shopify stock has soared 69% this year, and that's after more than doubling in 2017. It goes without saying that a stock doesn't just pop fourfold over the past 19 months without a little helium and hype. There'll be no margin for error if Shopify falls short of meeting Wall Street targets -- and merely meeting the numbers may not be enough.
Shopify's own guidance back in early May called for a small operating loss of $230 million to $235 million in revenue. Analysts are already perched near the high end of that range. Put another way, the bar for Shopify to clear may be $235 million instead of $234.6 million.
The other end of the income statement is also important. After three consecutive quarters of profitability on an adjusted basis, Shopify's outlook for an adjusted deficit may seem like a step back.
The market initially responded by selling off the stock. Shopify shares declined nearly 5% the morning it posted first-quarter results. However -- hype and helium alert -- the lion's share of Shopify's stock gains in 2018 have come since that initially poorly received first-quarter report.
Even the big gains since early May have had their speed bumps. Shopify and most of the e-commerce darlings took a hit after a Supreme Court ruling opened the door for states to require out-of-state internet retailers to start collecting state sales tax. Analysts generally have been jacking up their price targets in recent months, but there's still no shortage out there of vocal bears and short-sellers.
The only given here is that Shopify stock will be a big mover on Tuesday following its premarket earnings release and subsequent conference call. Investors will be watching to make sure that Shopify is growing across its subscription and merchant solutions. They'll be looking at the sales volume generated from Shopify's more than 600,000 merchant accounts.
There are a lot of things that Shopify will need to get right, but that hasn't stopped the stock or the company before.