Should you load Shopify inventory?

Written by Amy Legate-Wolfe at The Motley Fool Canada

Online shop (TSX:SHOP), the e-commerce darling, has had quite the rollercoaster ride. Since its initial public offering (IPO) in 2015, Shopify stock has seen meteoric rises and breathtaking falls. Let’s dive into whether you should invest in Shopify stock based on its performance so far.

But should you load up on Shopify stock? If you’re an investor who believes in the long-term potential of e-commerce and wants to ride out some volatility, Shopify could be a worthy addition to your portfolio. Its innovative spirit, strong market position, and revenue growth are compelling.

However, if you are risk averse or looking for immediate profits, you may want to proceed with caution. Always do your research and consider your investment horizon and risk tolerance. Let’s look at why.

A turbulent past

Despite reporting strong earnings for the first quarter (Q1) of 2024 with earnings per share (EPS) of $0.12, above expectations, Shopify’s share price fell from $123 to $90. The main culprit? An unexpected loss of $273 million, along with concerns about profitability and operational challenges, such as the sale of its logistics business and staffing adjustments.

Shopify’s Q1 2024 earnings report was mixed. On the positive side, the company reported EPS of $0.12, which beat the consensus estimate of $0.08. This measure means Shopify has managed to better control costs and increase profitability relative to analyst expectations. Additionally, Shopify’s first quarter 2024 revenue was $1.86 billion, slightly higher than the $1.84 billion forecast. This revenue growth shows that Shopify continues to attract more merchants and expand its services, which is a positive sign of long-term growth.

But it wasn’t all rosy news. Shopify also reported a surprising loss of $273 million, spooking investors and sending shares from $123 to $90. The loss raises concerns about the company’s path to sustainable profitability and its ability to successfully navigate operational challenges.

The story continues

Expectations

Looking ahead, Shopify’s next earnings report is expected on August 7, 2024. Analysts have set a consensus EPS estimate of -$0.18 for the second quarter of 2024, a significant decline from the previous quarter’s positive earnings. This projected decline reflects ongoing challenges and potentially higher costs as Shopify invests in growth and innovation. Revenue for the second quarter of 2024 is forecast to be approximately $2.07 billion, indicating continued revenue growth but also underscoring margin pressure.

Analysts have mixed feelings. Some see the latest recall as a buying opportunity, citing the company’s strong competitive position and innovative platform. However, a cautious investor may be cautious due to lower growth expectations and operational challenges.

Still, Shopify continues to innovate and forge strategic partnerships, such as its recent partnership with Target that allows Shopify merchants to sell through Target’s digital marketplace. These moves expand Shopify’s reach and provide new growth opportunities. It also remains a leading player in the e-commerce space. Its platform is widely adopted and its brand is strong, making it a resilient choice for the long term.

Looking to the future

Despite recent issues, Shopify’s long-term growth potential remains solid. Shopify has been transparent about its ambitious plans. The company invests heavily in innovation, partnerships and expanding the capabilities of its platform. For example, its recent partnership with Target to enable Shopify merchants to sell on Target’s digital marketplace demonstrates Target’s strategic initiatives to expand its market reach and enhance its commerce services. Additionally, Shopify’s focus on integrating artificial intelligence (AI)-powered capabilities and improving its logistics network is intended to strengthen its competitive advantage and support its merchant base.

In terms of numbers, analysts expect Shopify’s revenue to continue to grow. Second-quarter 2024 revenues are projected to be approximately $2.07 billion, indicating strong growth despite economic headwinds. Q2 2024 EPS is projected to be -$0.18, a stark contrast to positive earnings in Q1 2024. This reflects the company’s ongoing investments and associated costs. However, looking further ahead, analysts expect Shopify’s earnings to increase 32.79% next year, from $0.61 to $0.81 per share.

Conclusion

Investing in Shopify is like embarking on an exciting adventure—full of exciting innovations and strategic moves, but also unexpected twists and turns. But should you invest in Shopify stock? If you believe in Shopify’s long-term e-commerce potential and innovative strategies, this could be a great opportunity, especially given the stock’s recent decline. However, if you’re concerned about short-term profitability and market volatility, you should proceed with caution.

The post Is It Worth Uploading to Shopify Stock? appeared first on The Motley Fool Canada.

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Stupid contributor Amy Legate-Wolfe has positions at Shopify. The Motley Fool holds and recommends positions at Shopify. The Motley Fool has a disclosure policy.

2024