Shopify (SHOP) tumbled hard in 2022 following the Covid-19 era.
After enjoying a massive surge during the Covid-19 pandemic when demand for e-commerce soared because of lockdowns, Shopify experienced a sharp downturn in 2022 as pandemic-fueled online shopping growth slowed and macroeconomic pressures increased.
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The Ottawa provider of a platform and services for online stores saw its stock peak at $169 in November 2021. At one point in 2022, it traded for less than $30.
With inflation on the rise and consumer spending patterns shifting, Shopify adjusted its strategy, cutting staff and making more measured investments, particularly in logistics and warehousing, areas it viewed as critical to competing with giants like Amazon.
While Shopify’s stock has yet to fully rebound to its pandemic highs, the company’s recent performance suggests it’s on a steadier path and on track to regain ground lost in 2022, according to analysts.
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Shopify stock surges after earnings
Shopify gained 21% on Nov. 12 after posting strong Q3 earnings and issuing a rosy outlook.
The company reported earnings of US$0.35 a share, beating the 27-cent consensus estimate in an LSEG survey, and revenue of US$2.16 billion, above the $2.12 billion forecast.
Shopify expects Q4 revenue growth in the mid- to high-20% range, surpassing Wall Street's 22.8% forecast.
The fourth quarter is seasonally Shopify's highest-volume quarter of the year as it includes the holiday selling period, including Black Friday and Cyber Monday.
Related: Shopify stock skyrockets ahead of the holiday season
Shopify Chief Financial Officer Jeff Hoffmeister said on the call that the fourth-quarter outlook was “driven by the same factors that have supported our strong revenue growth results so far this year,” including “assumptions around the continued strength of our merchants' GMV."
Gross merchandise volume, or GMV, refers to the total value of products sold on Shopify's platform. It rose 24% year over year in Q3 to $69.7 billion, surpassing the $68.1 billion analysts had forecast.
Analysts raised Shopify price targets after earnings
Several analysts raised their price targets on Shopify after its Q3 earnings.
Goldman Sachs raised its target on Shopify to $135 from $88 and kept a buy rating, thefly.com reported.
The analyst says Shopify shares could gain momentum from increased performance marketing and enterprise investments consumer spending stays resilient.
Shopify’s gross merchandise volume remains more than three times U.S. e-commerce GMV after five consecutive quarters of growth, the firm added.
Related: Analysts revise Shopify stock price targets ahead of the holidays
Oppenheimer analyst Ken Wong raised Shopify's price target to $130 from $90 and maintained an outperform rating, citing its stronger-than-expected Q3 revenue.
Wong said the Q3 results were driven by GMV and merchant growth. He added that despite what he called a mixed consumer environment, management expects Q4 sales growth to accelerate to the mid- to high-20% range, supported by a new PayPal (PYPL) partnership and a stable macro outlook.
In September PayPal announced a partnership with Shopify to streamline payment processing for U.S. merchants.
Evercore ISI raised its Shopify price target to $125 from $80 with an outperform rating.
The investment firm's analyst noted that Shopify achieved its second meaningful expansion of free-cash-flow margin, with Q4 guidance suggesting that this trend will likely continue. This means the company is generating more cash relative to its revenue, indicating strongly efficient operations.
Evercore ISI also noted that the biggest outperformance drivers were strong international and enterprise GMV growth, and discipline about keeping costs down. GMV growth is a key performance indicator for e-commerce companies as it reflects sales activity and customer demand.
Shopify closed at $108.92 on Nov. 12. The stock is up nearly 40% year-to-date.
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