Shopify Stock Has a Lot to Prove This Week

The fast-growing e-commerce specialist gears up for a big first-quarter report.

Rick Munarriz
Rick Munarriz
Apr 29, 2019 at 1:25PM
Technology and Telecom

Shopify (NYSE:SHOP) is on fire these days. The e-commerce platform provider hit fresh all-time highs last week, and on Tuesday afternoon it will offer up its latest financial results. If Shopify is going to justify its heady gains -- up 61% so far in 2019 and a 13-bagger since going public four years ago -- it better make sure it comes through with another blowout report. 

The dot-com darling's guidance for the quarter back in mid-February was calling for $305 million to $310 million in revenue, 42% to 45% ahead of where it was a year earlier. If top-line growth doesn't top 54% -- and there's no reason to think that it will, even with Shopify historically providing conservative guidance -- it would stretch its streak of decelerating revenue gains to 13 quarters. The slowdown obviously hasn't been a deal breaker given the stock's buoyancy over the past three years, and most companies would love to be growing at a better-than-40% clip.

Shopify platform displayed on a laptop and a smartphone

Image source: Shopify.

High expectations

Analysts are holding out for $309.9 million in revenue when the fresh numbers come out shortly after Tuesday's market close, perched at the high end of Shopify's range. It's easy to see why expectations are lofty, and not just because Shopify has a habit of aiming low with its public forecasts. Canada legalized the recreational use of marijuana in mid-October, and Ottawa-based Shopify was tapped to run the official government sites for a few Canadian provinces. This will be Shopify's first full quarter of legalization in Canada, and will be interesting to see if sales are keeping up with the initial spike. 

The news won't be as kind at the other end of the income statement. Shopify's mid-February guidance was calling for an adjusted operating loss of $13 million to $15 million, but red ink has also not been a deal breaker for investors. The popularity of Shopify's platform -- now more than 800,000 merchants strong -- is the driving force behind the stock's stellar returns through its first four years on the market. 

Wall Street's setting up largely in the bullish camp heading into this week's report. KeyBanc analyst Josh Beck initiated coverage of Shopify on Monday with an overweight rating. He feels that Shopify's mobile-centric platform will continue to gain momentum, and sees plenty of catalysts in everything from international expansion to payment-processing initiatives fueling new highs down the road. He is establishing a price target of $250. 

Wedbush analyst Ygal Arounian is also chiming in today, sticking to his earlier outperform call but lifting his price target from $200 to $250. He concedes that the stock trades at a steep valuation to the market, but he feels the premium is warranted. Arounian does suggest buying on any pullbacks, but he's also lifting his price goal days after the shares hit all-time highs and on the eve of its next quarterly update. In short, he naturally thinks it will be a strong report or else he would've waited until after the results to update his stance. 

This will be a volatile yet important week for Shopify investors. It's time to see if the stock can justify the price-inflating hype.