Can Shopify Keep The Bounce Going?

For a company that had rallied more than 400% in a 12 month period and was still plowing forward to new highs, the recent selloff must have been a painful one for investors. But shares of Shopify (NYSE: SHOP) have been catching a strong bid since the lows of March and it looks like many on Wall Street are eager to get back on board.

Shopify is a Canadian e-commerce platform that has exploded in popularity as the go-to platform for the multitude of e-commerce startups that have sprung up in recent years. After trading sideways for much of 2018, the stock took off in January 2019 and closed out the year at highs. It continued the run into January 2020 and was still going strong until the coronavirus pandemic took hold of the world’s economy and shut it down.

Solid Results

Their Q4 results were released in mid-February and shares popped up 20% the next day on the numbers. Shopify’s earnings smashed analyst expectations as did their revenue, which came in with 47% growth year on year. That hallowed subscription revenue was also hot and management wasn’t bashful about it either. “2019 was a milestone year for us” said their CEO, Tobi Lütke. “We’ve earned the trust of more than one million merchants, and we are motivated more than ever to keep lowering the learning curve so anyone, anywhere can become an entrepreneur” while their CFO added, “Shopify’s merchants had a tremendous fourth quarter, powered by our ongoing efforts to help them sell more and manage their businesses more effectively.”

It makes total sense that as their customers grow and succeed, so too will Shopify. So what does all this mean in the world of Covid-19? US jobless claims soared over 6 million earlier this month, and all the major cities continue to keep the shelter in place orders active. There are already reports that the US is in a recession.

Well to start with, Shopify reported almost $2.5 billion in cash so they’re fairly well-positioned to ride out a downturn, even on a scale such as this. But there’s a strong argument that any downturn won’t be as bad for them and other e-commerce names as it will be for say the likes of travel, hotel, restaurant names. Take a look at Amazon (NASDAQ: AMZN), the king of e-commerce, who’ve announced the hiring of tens of thousands of workers to deal with a surge in demand. As people are forced to stay at home with only the bare necessity shops remaining open, they’re forced to make their usual purchases online. While there’s no doubt a drop in household income means there’ll be belts tightening, tens of millions of Americans are still gainfully employed.

Silver Lining

Earlier this month, Shopify commented on how the downturn in traffic for brick and mortar stores can only mean an increase in traffic to online stores. While they suspended forward guidance in light of all the uncertainty, they do expect Q1 earnings and revenue to be relatively in line with prior guidance, thanks to the strong January and February the company had.

Many investors will have seen that Amazon’s stock came with cents of all-time highs yesterday, completing a stunning 35% bounce off its March lows. Shopify is hot on its heels with a 47% bounce to date but it still has a lot of room to the north before it retakes February highs.

For investors considering getting back involved in equities, a best in class e-commerce platform isn’t the worst name in the bunch. If and as their customers continue to pivot and adapt to a changing environment, Shopify remains the go-to platform for them to run their online businesses from. If this broader market rally can keep going, there’s every reason to think Shopify’s can too.