It's too Soon to Ring the Register on Shopify's Growth Story

Shares of Shopify Inc. NYSE: SHOP are up more than 100% year-to-date, and some may wonder if now is the time to ring the register. Based on the trends and some recent news, the answer to that question is no. Shopify continues to gain traction in a world driven by eCommerce and is a high-probability candidate to outperform its earnings consensus for Q3. Not only did its revenue growth outpace the consensus in Q2, but the YOY growth accelerated compared to Q1 and Q2 of last year, and that could happen again in Q3. 

Looking to Q3, the analysts have been raising their estimates, but the consensus figure is still lagging the company's trajectory. Mid-quarter channel checks by Roth MKM revealed merchant volume to be above their target, suggesting their top-line estimate, above consensus, could be conservative. The current consensus expects only 20% YOY growth, a significant sequential slowdown, and a sequential revenue downtick against the trend, which suggests the Q3 outperformance could be substantial.

Shopify Says "Buy With Prime" 

Shopify shares surged on news that Amazon NASDAQ: AMZN would offer a "Buy it with Prime" app on the platform app ecosystem to end a long-running dispute. The app would allow merchants to display the "Buy with Prime" button on their products' main page, leaving them in control of their business despite using Amazon Prime logistic services. This is the first time that Shopify users have been able to offer Amazon Prime services while maintaining 100% control. The move should aid results for Amazon, Shopify, and Shopify merchants because about half of all Americans use Prime. 

Analysts like the news. Ken Wong of Oppenheimer thinks the app will improve merchant fulfillment experiences and conversions. Oppenheimer has a Buy rating on the stock compared to the consensus firm Hold. Their price target is $80 compared to the $65 consensus figure, which assumes the stock is already fairly valued. However, the trend in analysts' sentiment is upward, with the price target up 20% in the last quarter. Assuming this trend continues, the stock should also continue to move higher. 

Among the drivers of Shopify's growth is AI. The company is leaning hard into AI with a suite of tools it calls Magic. Magic includes features like automatic product descriptions and AI-enhanced workflow to help merchants start, promote, and scale their business using Shopify's proprietary data. Magic can help merchants boost exposure and conversions, and Shopify can deepen its penetration of existing clients. 

Shopify's growth outlook is supported by 3 metrics: merchant volume, merchant services, and payments. Highlights of the last report show all 3 metrics outperforming, with Merchant volume up 18%, gross merchandise value up 20%, and merchant services up 35% in evidence of deepening penetration of services. 

The Technical Outlook: Shopify is on the Brink of a Reversal 

The price action in Shopify stock hit a bottom last year and has been recovering ever since. The market is pushing higher again and on the brink of confirming a complete reversal. The critical resistance point is near $68 and could be broken soon. 

The post-Amazon news action has the market showing support at the 150-day EMA, which is also significant. Assuming the market follows through on this signal, a move above $68 is likely. In that scenario, a sustained rally could take the market up to the $90 range before hitting resistance. The next visible catalyst is in late October when the Q3 report is slated for release. Beyond that, eCommerce is expected to account for nearly half of all retail sales growth this holiday season and another reason to believe this stock's rally is far from over.