Stock Story -
What Happened: Shares of e-commerce software platform Shopify (NYSE:TSX:SHOP) jumped 5.6% in the afternoon session after equities (Dow +0.8%, S&P 500 +1.2%, Nasdaq +1.6%) surged for the second straight day with the start of earnings season showing that the health of companies that reported Q1 earnings was solid and that the economy seems to be holding up. Only about a fifth of S&P 500 companies have reported, but roughly three-quarters of them have beat expectations. This may be spurring dip buying following elevated volatility in the previous two weeks of trading.
Treasury yields pulled back suggesting markets are tempering the growing concerns about the possibility of higher for longer interest rates following recent economic data highlighting sticky inflation, ahead of the Fed's expectations.
While earnings thus far have been encouraging, most companies have yet to report. Microsoft (NASDAQ:MSFT), Alphabet (NASDAQ:GOOGL) and Meta (NASDAQ:META) will report this week, and many other bellwethers will announce their results in the coming weeks.
As a reminder, the driver of a stock's value is the sum of its future cash flows discounted back to today. With lower interest rates, investors can apply higher valuations to their stocks. No wonder so many in the investment community are optimistic about 2024. We at StockStory remain cautious, as following the crowd can lead to adverse outcomes. During times like this, it's best to own high-quality, cash-flowing companies that can weather the ups and downs of the market.
Is now the time to buy Shopify? Find out by reading the original article on StockStory, it's free.
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 biggest move we wrote about over the last year was 12 months ago, when the stock gained 12.9% on the news that the company reported gross merchandise value, revenue, and operating profit that beat expectations pretty strongly this quarter. Revenue growth was strong and it will continue in the next quarter as the company guided Q2 to feature a similar growth rate vs. Q1 (in-line with Consensus expectations). Shopify announced that it is selling its logistics business to Flexport (expected to close in 2Q23), and Shopify will receive 13% equity interest in Flexport.
The market likely cheered this deal because it should improve the company's operating leverage and capex profile. Lastly, Shopify announced layoffs that will impact roughly 20% of its workforce. Overall, we think this was a really good quarter that should leave shareholders feeling very positive.
Shopify is up 0.8% since the beginning of the year, but at $74.40 per share it is still trading 18% 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 $3,331.
