Shopify is the IBD Stock of the Day as the e-commerce firm popped above its 50-day moving average Wednesday following an analyst upgrade. Shopify remains a controversial stock amid stiff competition.
Started in 2006, Canada-based Shopify sets up e-commerce websites for small businesses, and partners with others to handle digital payments and shipping. It competes with Amazon.com, PayPal Holdings, Wix, BigCommerce and several others.
On the stock market today, Shopify was up more than 4% at one point but gave back some of those gains as the market fell. Shares ended the trading day 1.2% higher to 45.30. Shares have climbed 30.5% in 2023 versus the Nasdaq's 14% gain in the wake of last year's downturn.
In a period of consolidation, Shopify stock has a traditional entry point of 54.76.
Earnings Due For Shopify Stock
More aggressive investors could consider taking a position at 48.36 amid a handle still in formation. The handle would be in the lower half of the base, which is a flaw.
Earnings for Shopify stock are due in early May. Investors may want to be cautious ahead of the earnings report. One strategy around earnings would use call options.
At JMP Securities, analyst Andrew Boone on Wednesday upgraded Shopify to market outperform from market perform with a price target of 65.
"After analyzing the operating expense structure across the website builders, assessing third-party website traffic data, and speaking to professional website developers across these platforms, we are reaffirming our view that Shopify is the leader in commerce enablement and continues to take share," he said in a note to clients.
Further, Shopify is building a U.S. distribution network to store and ship products for its merchant customers. Rising investments for the distribution network has been one overhang on the stock.
Amazon Ramps 'Buy With Prime' For Merchants
In addition, Amazon has launched a new initiative. Amazon is offering its massive distribution network to outside merchants. Merchants who do not sell goods on its website can use Amazon's product fulfillment services for delivery and returns as part of a program called Buy With Prime.
UBS analyst Kunal Madhukar maintains a sell rating on Shopify stock.
"We are, on the margin, more negative on SHOP after hosting a call with a Shopify merchant who has been using Buy with Prime (BwP) since June 2022," Madhukar said in a recent note to clients. "BwP continues to improve. BwP has been testing and iterating since it was launched as a pilot program in April 2022. It now offers merchants the capability to add Amazon product reviews, get customer data, the ability to market to Amazon Prime members and offer discounts."
However, Shopify's investments will pay off as it targets larger merchants, other analysts say. Its premium Shopify Plus service targets big brands.
"We remain bullish on Shopify's fundamental prospects over the near term primarily stemming from the company's enterprise opportunity," said Deutsche Bank analyst Bhavin Shah in a report. "Shopify agencies and partners suggest enterprise adoption of Shopify Plus should accelerate in 2023. Many leading brands are now actively looking to migrate or are in the process of migrating over from legacy/competing solutions."
SHOP Stock Gained During Pandemic
At MoffettNathanson, analyst Lisa Ellis also views Shopify as a market share taker.
"Selling shovels to miners in an e-commerce gold rush is the perfect business," Ellis said in a note. "Shopify seized the opportunity of the (coronavirus) pandemic and now powers 10% of all U.S. e-commerce. The gold rush has slowed. Shopify's multiple has contracted as investors digest a secular growth story transitioning to one of increased capital intensity and questions on profitability."
Meanwhile, Shopify stock holds an IBD Composite Rating of 85 out of a best possible 99, according to IBD Stock Checkup.
IBD's Composite Rating combines five separate proprietary ratings into one easy-to-use rating. Also, the best growth stocks have a Composite Rating of 90 or better.
Further, Shopify stock has an Accumulation/Distribution Rating of B. That rating analyzes price and volume changes in a stock over the past 13 weeks of trading. Its current rating indicates more funds are buying than selling.
Shopify Stock: 2023 Revenue Outlook Missed
The rating, on an A+ to E scale, measures institutional buying and selling in a stock. A+ signifies heavy institutional buying; E means heavy selling. Think of the C grade as neutral.
For the period ended Dec. 31, Shopify said it earned 7 cents per share on an adjusted basis, down 50% from a year earlier. Also, revenue for Shopify stock rose 26% to $1.7 billion, the company said.
Analysts expected the Shopify earnings report to record a loss of 1 cent on revenue of $1.65 billion. A year earlier, Shopify earned 14 cents per share on revenue of $1.38 billion.
For the first quarter of 2023, the company predicted revenue growth in the "high teens." Analysts had projected more than 20% revenue growth. And in January, Shopify hiked contract prices for merchants.
Follow Reinhardt Krause on Twitter @reinhardtk_tech for updates on 5G wireless, artificial intelligence, cybersecurity and cloud computing.
