Shopify (SHOP 1.11%) investors have been on a roller-coaster ride in 2023, but the broader trend points to more ups than downs going forward. Share prices this year are up nearly 90% through mid-November, trouncing the 34% rally in the Nasdaq Composite.
Wall Street is excited about a few positive trends for this software-as-a-service business. E-commerce sales are back on the upswing, for one. Shopify is selling more subscription services, too, and is greatly expanding its offerings. Profit margins could reach new highs in the coming years with help from the divestment of its costly logistics segment.
Charts can often illustrate these rebound stories more clearly, so let's look at three graphs that show the magnitude of Shopify's operating rebound heading into 2024.
1. Shopify's growth is again accelerating
SHOP Revenue (TTM) data by YCharts
Shopify had a rough 2022, in part, because sales gains slowed right when expenses were soaring. But the company seems to have put that growth hangover behind it. Revenue jumped 30% year over year in the most recent quarter after adjusting for the sale of its logistics business. That rate is up from the 28% increase that investors saw in the last quarter of 2022, and it reflects gains in both sales volumes and subscription revenue.
Shopify is likely to reach $7 billion in annual sales this year, according to most Wall Street pros, up from $3 billion in 2020. That excellent momentum could continue into 2024 as the company gains market share among sellers and deepens its relationship with existing merchants.
In the past year, it has built a big presence in payments processing and back-office productivity services, for example. Look for Shopify to press this advantage over the next several years.
2. Shopify's cash flow rebounded
SHOP Cash from Operations (TTM) data by YCharts
Shopify is still losing money, but cash flow trends tell a more positive story. Operating cash flow has fully rebounded since cratering last year and is approaching $600 million on a trailing-12-month basis.
That recovery is being helped along by strong demand growth, to be sure. But the bigger factor is Shopify's aggressive cost-cutting program. The software specialist has slashed expenses and recently sold off its logistics segment. Investors are excited about the potential impact that these moves could have on profit margin into 2024 and beyond. For early indications of that success, keep an eye on cash flow over the next several quarters.
3. Profit margin, net losses show positive momentum
SHOP Operating Margin (TTM) data by YCharts
One of the biggest benefits of platform businesses like Shopify is that they can generate high profits in an industry that's known for producing lackluster margins. Marketplace giant eBay, for example, sports an operating profit margin of over 20% of sales compared to Walmart's 3% rate.
Shopify hasn't delivered on that promise so far. Net losses ballooned last year, in fact. Yet those losses could soon be a thing of the past. Shopify booked a $718 million profit last quarter, its first in over a year. Net losses through the first nine months of 2023 have improved to $525 million from $2.8 billion a year earlier.
The stock's rally so far this year suggests that most Wall Street pros think this positive momentum will continue into 2024 and beyond. If it does, Shopify could deliver more market-beating returns for patient shareholders.
