By Ketki Saxena
Investing.com – Canadian e-commerce giant Shopify (TSX:SHOP) is expected to report first-quarter 2022 earnings tomorrow morning, before the opening bell.
Earnings per share are expected at C$ 0.67 on revenue of C$1.242 B, compared to EPS of C$1.36 on revenue of C$1.38 B in the previous quarter. Investors will also be awaiting more details of a stock split which the company announced in early April in order to attract more retail investors.
Sector Outlook
In recent weeks, analysts have slashed price targets and earnings estimates for Shopify as the e-commerce sector faces headwinds from rising inflation, concerns of consumer spending, and worries of an economic slowdown.
E-commerce, which has maintained high valuations in the course of the pandemic lifted by the seismic shift in consumer habits, is now being challenged by a reversion to older retail behaviours and concerns about consumer spending in a highly inflationary environment.
E-commerce stocks, amongst other growth and tech stocks, are also being particularly influenced by rising yields and risk-off sentiment related to monetary policy tightening, slowing economic growth, and the Russia-Ukraine conflict.
Worries of a slowdown in the sector were brought to the forefront last week following Amazon (NASDAQ:AMZN) earnings, in which the company reported a loss of US$3.8-billion in its first quarter, compared with a profit of US$8.1-billion in the same quarter last year.
Stock Outlook
Rising inflation will have increased the costs of raw materials, advertising, labour and shipping for Shopify. In addition to the macro challenges pressuring the sector, Shopify’s margins will also have been affected by its scaling of operations, and investments in product development and the fulfillment platform.
These include Shopify Markets to support cross-border commerce, and payment options Shop Pay, Shop Pay Installments and Shopify Balance, which have seen strong adoption so far.
Despite the recent downgrades and the 65.7% YTD decline in Shopify shares, analysts remain optimistic about the stock in the long term.
RBC (TSX:RY) Capital Market analysts - despite downgrading their price target from $1,300 to $1,000 - noted that “While shares are likely to remain volatile in the near-term, we believe Shopify is one of the most compelling long-term growth stories in our coverage.”
Fair Price Target (NYSE:TGT), Financial Upside
As of 1:45 p.m ET, Shopify shares were trading at C$585.59, down 1.97% so far today and with a 52-week range of C$527.96 - 2,228.73,
Analyst Estimates suggest a consensus 12-month fair price target of C$1,248, representing a 134.7% upside potential.