What happened

Shopify (SHOP -1.63%) shares managed a positive end to a negative year. Shares gained 11% in the final six months of the year, beating the 1.4% increase in the S&P 500 during that time, according to data provided by S&P Global Market Intelligence. The e-commerce specialist still trailed the market for the full 2022 period by dropping a painful 75%.

The second-half rebound came as investors grew less wary about a brutal recession on the way in the e-commerce industry in early 2023. It also helped that Wall Street found more reasons to like tech stocks in general as 2022 drew to a close.

So what

Shopify helped the cause by showing signs of steady sales growth through late September. Revenue was up 24%, in fact, in the third quarter after accounting for currency exchange rate shifts.

The company notched some other key wins in the year's final months, including rising subscription revenue and more uptake for its merchant services. These successes boosted Wall Street's mood about the business heading into the core holiday shopping season.

Yet Shopify is still reeling from the combination of slowing growth and soaring spending. Operating losses landed at 25% of sales in Q3 compared to the 15% loss the company reported in the prior quarter. Executives have warned that it will take time to bring spending down in line with the slower growth profile. An improvement in the net losses trend is expected in 2023.

Now what

Investors will know much more about the timing of that earnings rebound when Shopify makes its fourth-quarter announcement in mid-February. That report will show whether sales volumes remained strong in the holiday shopping period even as the company worked to slash costs. Sales volumes on its platform were up a strong 19% on Cyber Monday. 

The big question facing investors is whether the sharp shift in demand back away from e-commerce in 2022 will persist in 2023 and beyond. The bullish thesis for the stock rests on a steady march higher for digital sales as a percentage of all retailing spending, which occurred in the years leading up to the pandemic and sped up during its earlier phases.

Shopify might continue its positive momentum in 2023, but only if Wall Street sees proof that the company is moving toward profitability while growing its sales footprint. Watch for signs of these improvements, potentially beginning with the company's Q4 report in just a few weeks.