This is going to be a big week for Shopify (SHOP 0.26%) investors. The e-commerce platform provider reports fresh financials shortly after Thursday's market close, and a lot is riding on Shopify's third-quarter results.
One of the market's hottest stocks -- nearly quadrupling through 2016 and 2017 -- has fallen on hard times since peaking this summer. Shares have fallen 28% since July's all-time highs, established a week before Shopify failed to impress investors with its second quarter's performance. Let's go over a few of the ways Shopify stock can become a market darling again.
Image source: Shopify.
1. The third quarter has to be a consensus blowout
A stock doesn't get battered over the past three months unless it's being deep-fried in pessimism. Wall Street knows what it wants out of Shopify's report on Thursday afternoon. Analysts see revenue rising 50% to $257.5 million, and they're settling for an adjusted deficit of $0.02 a share. A profit would be nice when investors are bracing for red ink, and that's just what Shopify has done in three of the past four quarters.
| Quarter | EPS (Estimate) | EPS (Actual) | Surprise |
|---|---|---|---|
| Q3 2017 | ($0.02) | $0.05 | 350% |
| Q4 2017 | $0.05 | $0.15 | 200% |
| Q1 2018 | ($0.05) | $0.04 | 180% |
| Q2 2018 | ($0.03) | $0.02 | 167% |
Data source: Yahoo! Finance.
However, beating expectations this week won't be enough. Shopify has consistently exceeded Wall Street's adjusted profit targets over the past several quarters, and that wasn't sufficient to save the stock last time out. Analysts were mixed in their assessment of Shopify's prospects as a portfolio holding three months ago, and Shopify will need to impress bulls and bears alike. Don't assume that a stock that shed roughly a quarter of its value since its last report will be off to the races with just a modest beat.
2. Shopify needs to downplay China concerns
A big reason for Shopify's recent weakness is the intensifying trade tensions with China. The stock came under pressure late last week on reports that President Trump was considering a withdrawal from the Universal Post Office Treaty that allows Chinese companies to ship small packages in the U.S. at a discounted rate.
Investors assume Shopify merchants will suffer if drop shipments became more expensive, but it's not clear how many of the more than 600,000 accounts on the platform are leaning on Chinese manufacturers to satisfy stateside orders. There are a lot of moving parts to Shopify, and the Canadian company is a truly international player. The stock would benefit if Shopify is able to quantify the actual extent of how Chinese trade tensions could influence its business.
3. Shopify could benefit from its role in Canadian cannabis
One of the silver linings in last week's slide was that Shopify is playing up the traffic boost at some of its merchant stores after recreational marijuana became legal in Canada on Wednesday. Shopify merchants were ringing up more than a hundred orders per minute through at least the first few hours of legalization.
We're not just talking about private-party retailers. A few Canadian provinces chose Shopify to power their official online storefronts. Shopify will have a week of data when it reports latest this week, and if momentum remains healthy, it could have some head-turning metrics to report. There aren't many established publicly traded companies that deserve to be bid up as cannabis plays, but Shopify can become one of them with encouraging comments this week.
