After years of unbridled growth, e-commerce tools purveyor Shopify (SHOP 0.35%) was hit by a perfect storm. The surge in lockdown-fueled gains gave way to tough comps and stagnant growth. Investors soured on many technology companies and any stock with a high valuation, sending the major market indexes into bear market territory.
The final straw was raging inflation, which dragged the economy into the worst downturn in more than a decade. Each of these factors weighed on Shopify, which shed as much as 85% of its value since late last year. Recent shopping data suggests the tide may finally be turning.
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Record sales
Late last week, Shopify reported an encouraging start to the holiday shopping season. Merchants using the company's e-commerce platform generated record-setting Black Friday sales totaling $3.36 billion, which marked a 17% increase year over year, or 19% on a constant currency basis. Shopify reported strong sales from the U.S., Canada, and the U.K.
The good news continued through the weekend, and when all was said and done, Shopify notched another record. Sales generated between Black Friday and Cyber Monday totaled $7.5 billion, up 19% year over year and 21% in constant currency.
To give that context, e-commerce leader Amazon said the weekend was its "biggest ever," with small businesses in the U.S. generating more than $1 billion in sales on its platform over the long weekend. That total doesn't include Amazon's own sales, which it keeps close to the vest.
Shopify said more than 52 million consumers globally made purchases on sites powered by its technology, an increase of 12% compared to 2021. Consumers were opening their wallets wider as well, with average spending of $102.10 per order (on average) -- or $104.80 in constant currency -- climbed from $100.70 spent this time last year.
Cross-border sales, powered by strategic partner Global-e Online (GLBE +1.23%), had a solid showing, representing 15% of all global orders. This suggests Global-e online could have generated GMV of as much as $1.125 billion, well above the company's forecast for the quarter. Shopify not only collaborates with the company but also has a sizable stake, owning more than 17.4 million shares of Global-E Online stock, a 10.2% stake worth more than $420 million.
It's important to note that the Black Friday/Cyber Monday weekend is really just the start of the retail spending to come, so while it isn't a proxy for the full holiday season, it shows that things are off to a good start.
NASDAQ: SHOP
Key Data Points
Headed in the right direction
The early results suggest investors could be underestimating Shopify's potential results to close out 2022. Jefferies analyst Samad Samana ran the numbers and came to an interesting conclusion. If Black Friday/Cyber Monday sales as a percentage of gross merchandise volume (GMV) are consistent with last year's holiday quarter, it suggests that GMV on Shopify's platform will be roughly $64 billion, up 19% year over year. That would put the results ahead of analysts' consensus estimates for GMV of $59 billion. This would result in sales on the platform about 8% higher than expectations.
Taking that one step further, analysts' consensus estimates are calling for revenue of $1.6 billion in the fourth quarter. All things being equal, Shopify's revenue could be as much as $1.73 billion based on the higher GMV -- or well ahead of Wall Street's expectations.
It's important to note that this is all fun with numbers, and even the slightest change in consumer behavior could make those estimates moot. That said, it could also be the start of a rebound for Shopify.
Furthermore, investors looking for a holiday sale could do far worse than buying shares of Shopify. The stock is currently trading for just five times next year's sales, near the lowest valuation in its history. While Wall Street generally recommends stocks with a price-to-sales ratio between 1 and 2, investors have historically awarded a premium valuation to companies with a history of solid growth -- particularly those that can leverage existing technology that will scale to accommodate additional users. That illustrates why Shopify is a buy.
