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Should you buy Shopify (SHOP) stock ahead of earnings?


Shopify Inc. (NYSE: SHOP) played an important role in enabling small and medium businesses to become visible when shoppers rushed to eCommerce platforms after the coronavirus outbreak. Though the company benefitted from the shopping boom initially, the momentum waned later and its stock entered a losing streak reflecting the weakening investor sentiment.  

Currently, the Canada-based e-commerce platform is investing in its product portfolio, in an effort to become more competent and expand the addressable market. Of late, the company has maintained stable gross merchandise volume and recurring revenue despite the unfavorable inflationary environment.

Stock Watch

Though Shopify’s shares are back in recovery mode, they have a long way to go before creating meaningful shareholder value once again. Going by the current trend, the stock is likely to experience weakness in the near future. When it comes to the company’s finances, the management’s strategy is focused on raising prices to drive margin growth, but it might not be sufficient to maintain profitability.

Shopify is expected to unveil its fourth-quarter numbers on February 15 after the close of business. Stakeholders will be closely following the event, considering the company’s weak bottom-line performance in the September quarter. It is estimated that revenues would grow by 20% to $1.65 billion. But that is unlikely to translate into profit.

Slips to Loss

In the final three months of 2022, the bottom line is estimated to have slipped into the negative territory, for the second time in a row. For the third quarter, the company had reported a loss of $0.02 per share — the first negative earnings in about three years. In the prior-year quarter, it was earnings of $0.08 per share. Margins suffered due to a 64% jump in operating expenses, which more than offset a 22% growth in revenues to $1.4 billion in Q3.

From Shopify’s Q3 2022 earnings call:

“Since the beginning of 2021, over half of the rapid adoption of point-of-sale Pro is being driven by new SMB retailers coming to Shopify to get their start as a new omnichannel business. Additionally, over 1/3 are from established offline retailers who are entirely new to e-commerce or selling only on point of sale. These stats demonstrate the power of our commerce platform and the breadth of capabilities we have built to make it easier for our merchants to reach customers on every surface.”

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Shopify’s shares got a much-needed push ahead of earnings, after entering the new year on a positive note. The stock rose about 25% in the past 30 days and traded higher throughout Monday’s session.

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