Black Friday frenzy, big EPS estimate send Shopify higher

Key Points

• In November, Shopify's stock surged by 56.37%, driven by strong earnings expectations and Black Friday blowout sales.
• Merchants on Shopify's platform racked up $4.1 billion worldwide in combined sales on Black Friday.
• The stock recently broke out of a double-bottom base, but is now extended from that buy point. 

Merchant sales platform Shopify Inc. NYSE: SHOP ended the November 27 session 4,89% higher, at $73.79 after posting record revenue on Black Friday. 

Trading volume was more than double the average. 

So far in November, Shopify stock is up 56.37%, also boosted by analysts’ expectations for a 1,625% earnings increase this year. That’s not the kind of earnings gains you typically see; that only happens with a company whose product or service is in red-hot demand.

With a market capitalization of $94.63 billion, Shopify is tracked in the iShares MSCI Canada ETF NYSEARCA: EWC, where it’s the third-largest component and the largest of the index’s technology stocks. 

The company said merchants using its platform racked up a combined $4.1 billion in sales. That number was based on gross merchandise volume by Shopify merchants worldwide from November 23 through November 25. 

22% year-over-year sales increase

“From the crack of dawn in New Zealand through the final minutes in California, our merchants drove a 22% increase in sales over last year,” the company said in a statement.

It added that shopping peaked when collective sales reached $4.2 million per minute at 12:01 p.m. Eastern time on Friday.

Shopify said Black Friday highlights from its merchants included: 

• Hottest product categories: Clothing, personal care, and jewelry.
• Average cart price: $110.71, or  $110.08 on a constant currency basis, which is adjusted to negate exchange rate fluctuations.
• Top-selling countries: U.S., U.K., and Canada.
• Top-selling cities: Los Angeles, New York, and London.
• 15% of total orders were made across borders.
• The Black Friday sales represented 33% year-over-year increase in global sales on Shopify’s point-of-sales system. 

Even before the Black Friday announcement, Shopify stock was on a roll.

Cleared double-bottom base and kept rallying

A look at the Shopify chart shows the stock breaking out of a double-bottom base on November 15, clearing a buy point north of $67.60. It continued rallying after that. Shopify stock has posted a gain of 34.38% in the past month.

Year-to-date, shares are up 102.68%. 

The company offers a robust e-commerce platform for small business owners, making it simple to set up a product sales page and blog, as well as publishing other data relevant to their businesses. 

The stock went public in 2015 and rose rapidly for six-and-a-half years, being well positioned for the Covid-era online business boom. 

Carving out unique niche

As a first-mover in its niche, Shopify has a built-in advantage. Other companies specialize in Web hosting, and Etsy Inc. NASDAQ: ETSY offers small creative businesses a platform to sell their wares, but Shopify’s overall service isn’t exactly replicated elsewhere. 

Shopify earnings data show the company beating analysts’ views on the top and bottom lines. 

Revenue has been growing at double-digit rates in the past eight quarters. Earnings have been up at triple-digit rates. 

After Shopify’s third-quarter earnings report on November 2, the stock gapped up 22.36%. The company expects 2023 revenue to grow at a percentage rate in the mid-twenties, spurred by a high fourth-quarter revenue increase.

"Established a narrow moat"

Following that report, Morningstar analyst Dan Romanoff wrote, “We believe the company has established a narrow moat, as switching critical e-commerce platforms has financial and operational costs for an already resource-constrained small or midsize business.”

Shopify stock is currently out of buy range, as it’s trading 9% above its $67.60 buy point. 

Chasing a stock beyond its buy point can be risky, as it may lead to buying at elevated prices, increasing the potential for losses if the stock declines. In fact, that’s actually “when” the stock declines, because it’s very normal to see a pullback after a big rally.

It’s not unusual to see some investors pocket some profits after a fast run-up, as Shopify has seen in November. 

Investors who watch for those pullbacks can nab shares in Shopify or any strong stock when it retreats and finds support at a key moving average, such as the 10-day or 21-day line.