eCommerce sensation Shopify (Shopify Stock Quote, Chart, News TSX:SHOP) certainly has its detractors, whose ranks seem to be growing on pace with the stock. But it’s hard to argue with the ongoing secular transformation in retail, currently lifting the share price for both Shopify and online juggernaut Amazon (Amazon Stock Quote, Chart, News NASDAQ:AMZN). And that’s as it should be, says David Burrows of Barometer Capital Management, who thinks just like eCommerce in general, Shopify, like Amazon, has plenty more room to grow.
“If you aggregate the sites that they supply, Shopify is the second-largest e-retailer behind Amazon,” says Burrows, president and chief investment strategist at Barometer, who spoke on BNN Bloomberg on Thursday.
“What they bring to their customers is buying power and efficiencies that they would definitely not have on their own. And we know that online shopping has been accelerated going through COVID and if we’re not going back to where we were and if Shopify is going to supply all of these small and mid-sized businesses with the arsenal to battle Amazon, I would own both stocks,” Burrows said.
With Black Friday and Cyber Monday now behind us, it’s now the big lead-up to Christmas that’ll keep investors thinking about the record-breaking year we’re having in online retail. Amazon has already announced figures for the long weekend, saying independent businesses selling on Amazon hit a record $4.8 billion in global sales, while UPS has put a cap on its delivery service from larger retailers as it struggles to keep up with shipping demands in a pandemic-inspired, unprecedented migration of commerce online.
Notably, that transformation has Shopify’s name written all over it. Bricks and mortar shopping has been curtailed in some jurisdictions and limited in others, as governments try to control the spread of the coronavirus in its second wave through the holiday season. And with it, 2020 has seen businesses upping their e-commerce game, with Shopify’s platform being a prime destination.
For its part, Shopify said the Black Friday through Cyber Monday period saw sales of over $5.1 billion on its platform, which was up 76 per cent from the same period in 2019. The company reported sales in the week leading up to Black Friday were also strong, up 84 per cent from 2019’s sales for the same period.
“The record sales we saw on Shopify over Black Friday/Cyber Monday weekend demonstrate the power of the independent and direct-to-consumer businesses on our platform,” said president Harvey Finkelstein in a press release. “With the centre of gravity in commerce shifting from in-store to online, the pandemic has accelerated a change we have long anticipated. This multichannel shopping phenomenon is the blueprint for the future of retail—and we couldn’t be more excited by it.”
Shopify’s latest quarterly results, its Q3 delivered in late October, also told the tale, with revenue almost doubling year-over-year to $767.4 million and gross merchant volume on its platform growing by 109 per cent to $30.9 billion. Net income for the third quarter was $191.1 million or $1.54 per diluted share versus a net loss of $72.8 million or $0.64 per basic and diluted share a year earlier. (All figures in US dollars.)
That growth along with expectation for more ahead has been the fuel for SHOP’s share price going through the roof this year. The stock is currently up a whopping 162 per cent for 2020, whereas Amazon, no slouch by any means, is up 72 per cent.
Burrows said it’s clear Shopify is a pricey stock but investors should focus on the territory the company has yet to conquer, which is still vast.
“I think Shopify has a very bright future. It’s expensive, there’s no question, but the stakes are big in this industry,” he argued. “The stock has consolidated since June in a wide range and it’s not far from breaking out to new highs and certainly I would expect that to happen.”
“I would continue to buy the stock here, as I have over the last several years,” he said.
On Shopify’s third quarter, National Bank Financial analyst Richard Tse said investors should be focusing on the company’s ability to put up strong numbers even as some retail stores reopened over the Q3. Tse said that shows a company able to respond positively to changing dynamics in the landscape.
“We think that ability to be nimble and respond quickly is one of the most notable drivers of success in this rapidly evolving and competitive market segment and it’s our view that those rapid responses allowed Shopify to harvest outsized value under the current backdrop,” wrote Tse in a client update on October 29.
Tse put a reaffirmed rating of “Outperform” on Shopify with a 12-month target (unchanged) of $1,250.00, which at press time represented a projected return of 25.2 per cent.