Stock Story -
What Happened: Shares of e-commerce software platform Shopify (NYSE:TSX:SHOP) jumped 5.4% in the morning session after Goldman Sachs (NYSE:GS) analyst upgraded the stock's rating from Neutral to Buy and raised the price target from $64 to $74. The new price target represents a 25% premium from where shares traded when the upgrade was announced. The analyst added, "Given Shopify's significant technology moat in eCommerce software and share gain across eCommerce cycles, we believe these investments will drive more durable revenue growth at scale." After the initial pop the shares cooled down to $58.64, up 2.8% from previous close.
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What is the market telling us: Shopify's shares are very volatile and over the last year have had 18 moves greater than 5%. In context of that, today's move is indicating the market considers this news meaningful but not something that would fundamentally change its perception of the business.
The previous big move we wrote about was 14 days ago, when the stock dropped 19.9% on the news that the company reported first-quarter results and provided revenue guidance for Q2, which implied a growth deceleration. In Q2'2024, Shopify expects revenue to grow at high-teens percentage rate on a year-over-year basis. This is a significant decline compared to the low-twenties percentage growth recorded in Q1. On a more positive note, GMV (gross merchandise value) and revenue both came in narrowly ahead of analysts' estimates during the quarter. It's noteworthy that the magnitude of these beats was smaller and less convincing than previous quarters. EPS did beat by a more convincing margin. Gross margin improved while the business continued to generate positive cash flow. Overall, it was a mixed quarter for the company, with the market likely worried about the weaker growth forecast for a company trading at a fairly lofty valuation.
Shopify is down 20.7% since the beginning of the year, and at $58.64 per share it is trading 35.4% below its 52-week high of $90.72 from February 2024. Investors who bought $1,000 worth of Shopify's shares 5 years ago would now be looking at an investment worth $2,099.
