CONTRIBUTOR Tom Taulli Investorplace : Updated-02:11:2019
Since late August, Shopify (NYSE:) stock has come under considerable pressure. Note that the shares have gone from $406 to $310. But then again, there has been a selloff of many high-flying tech stocks, such as Zscaler (NASDAQ:), Workday (NASDAQ:) and Zoom Video Communications (NASDAQ:).
However, the recent volatility of Shopify stock looks more like a blip, considering that SHOP stock has soared more than 120% this year. So what now? Will Shopify stock resume its winning ways?
Well, this week the company reported its third-quarter results — and yes, the growth story looks to be intact. Revenues jumped by 45% to $390.6 million. The Street, on the other hand, was looking at estimates of $383.8 million.
A key to the company’s success has been its focus on innovation, which has continued to improve the platform for merchants. Here are just some of the highlights during the quarter:
- Shopify Marketing now has the ability to easily buy digital ads across Microsoft’s (NASDAQ:) platforms, Yahoo! and AOL.
- The company is allowing the sale of hemp or hemp-derived cannabidiol products on its platform. This is so long as various federal, state and local laws are complied with. According to BDS Analytics, the market in the U.S. is expected to jump from $1.9 billion in 2018 to $20 billion by 2024.
But perhaps the most important development for SHOP stock is the company’s debut of its fulfillment network. It’s a sophisticated system that makes it easier for merchants to deliver their products in the US. It is based on advanced inventory technologies and backed by machine learning that helps with predictions.
6 River Systems
To bolster the network, Shopify spent $450 million to acquire 6 River Systems. The company is a leader in automation and robot systems for fulfillment.
According to 6 River Systems co-CEO : “By joining Shopify, we’re changing the game of fulfillment. Together, we will help thousands of businesses improve their fulfillment operations, with an easy-to-learn solution that can more than double productivity and improve accuracy.”
Yet the fulfillment strategy will take time to have an impact on SHOP’s financial results. But according to the earnings call, the early indications are that merchants are showing strong adoption.
Bottom Line On SHOP Stock
In the quarter, SHOP did post an unexpected loss of 29 cents a share, while the consensus estimate was for a profit of 11 cents a share. Although the company is investing heavily in research, development, marketing and global expansion, it is concerning that — despite the scale of revenues — there remain losses. This could be a problem going forward, as investors are getting more focused on profitability for tech companies.
Next, competition is becoming a factor. Just some of the rivals include Salesforce (NYSE:), Adobe(NASDAQ:) and Square (NYSE:). There is even buzz that Amazon (NASDAQ:) will make a play for the market.
In the meantime, SHOP stock is already factoring in much of the good news anyway. Unless the company sees a big growth on the top line — with profits — it could be tough for the shares to post market-beating gains.
Tom Taulli is the author of the book, . Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.
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