Shopify should be the “S” in FAANGS, Jim Cramer says

Shopify, which became Canada’s largest tech company by market cap earlier this month, released its fourth quarter financials on Tuesday, reporting a loss of $1.5 million on revenue of $343.9 million. On an adjusted basis, the company came in with a 26-cent per share profit, which was better than the previous Q4 of 15 cents per share and better than the analysts’ consensus average of 20 cents per share. (All figures in US dollars.)

Shopify’s share price has been on a tear since Christmas, increasing 32 per cent over the past six weeks and hitting a new high last week. The company passed another milestone by reaching over $1 billion in sales for 2018, with management calling for even better results in 2019.

And while the company has gained international exposure through its work with celebrity capitalists like Kylie Jenner and Kanye West, in Canada it’s Shopify’s cannabis connection that has caught attention. The company has run online pot sales for provinces such as Prince Edward Island, British Columbia and Ontario and has become the point-of-sale system for a number of industry heavyweights including Canopy Growth Corp, Aurora Cannabis and Hexo Corp.

Finkelstein says the Canadian experience has been key.

“The reason why we started [facilitating cannabis sales] in Canada was because there’s clarity in Canada. The Canadian government was very clear on how they were going to roll out the commercialization and the legalization of cannabis sales on the consumer side,” said Finkelstein, in conversation with Jim Cramer of CNBC on Tuesday.

“We felt it was really important for us to act quickly and effectively to not only win as much of the Canadian market as we possibly could but also to show the rest of the world as they begin to think about cannabis sales that we’re the first phone call that they should be making,” he says.

At over 800,000 customers, Shopify’s runway could still be huge. In response to the company’s fourth quarter results, National Bank Financial analyst Richard Tse raised his price target from $180 to $200, arguing that there is significant scaling growth potential on the international stage and with large enterprises.

In a research note to clients on Tuesday, Tse said, “In our view, we’re in the early innings of those incremental growth drivers kicking in while the existing customer base continues to expand its spend with Shopify as evidenced by the increasing take rates in that cohort.”

Cramer said Shopify’s success should rightly put it up in the same category as the more well-known FAANG stocks. “If they were in Silicon Valley, maybe they would be the S in FAANGS,” Cramer said.