Shopify Stock Outshines Sector with Strong Growth and New Innovations

Shopify (SHOP) shares have increased 20.7% this year, significantly ahead of the Zacks Computer and Technology sector’s rise of 3% and the Zacks Internet – Services industry’s drop of 0.1%. 

Impressive Fourth-Quarter Results Drive Market Confidence

Following the release of fourth-quarter 2024 results last Tuesday (Feb. 11), Shopify’s stock appreciated by 7%. The company reported non-GAAP earnings of 44 cents per share, aligning with the Zacks Consensus Estimate, and showing a remarkable year-over-year increase of 29.4%. Revenues reached $2.81 billion, exceeding expectations by 3.26%, and grew 31.2% year over year.

Shopify’s growth stems from an expanding merchant base, supported by user-friendly tools like Shop Pay, Shopify Pay Installments, Sign in with Shop, and the Shop App. These innovations are attracting new merchants even in challenging economic times.

In the fourth quarter, Gross Merchandise Volume (GMV) hit $94.46 billion, a 25.7% increase from the previous year. Key factors behind this growth include sales advancements from existing Plus merchants, an increasing number of merchants on the Shopify platform, and solid international sales.

Shopify Stock Performance Overview

Image Source: Zacks Investment Research

New Features to Enhance Merchant Experience

In its latest update, Shopify has introduced over 150 new features aimed at improving merchant operations. These enhancements are designed to make business management more straightforward and efficient.

Brands such as Reebok, Champion, Westwing, and BarkBox are now joining Shopify’s platform. The expansion covers various sectors, including apparel, health, and beauty, with new partnerships emerging across Europe, featuring names like Karl Lagerfeld and FC Barcelona.

Shop Pay has reported strong growth, processing $24 billion in GMV during the fourth quarter, up 50% year over year, indicating notable expansion in Shopify’s merchant community. Additionally, new enterprise retailers, including shoe brands Aldo, Sperry, and Call It Spring, contributed significantly to the surge in GMV from Shop Pay Commerce, which increased about 20-fold in 2024.

The Shop Pay app has introduced personalized shopping experiences through curated events and category browsing, as well as new features like cart syncing.

Looking ahead, Shopify aims to enhance its AI capabilities, which will support both new and established merchants in scaling operations and improving productivity. The company plans to broaden its reach in merchant sizes and boost its presence in Japan and European markets.

A Strong Network of Partnerships Supports Shopify’s Growth

SHOP benefits from collaborations with well-known companies like TikTok, Instagram, Target, PayPal, Roblox, Alphabet, Manhattan Associates, Oracle, COACH, and Adyen. 

Through its strengthened relationship with PayPal, Shopify is diversifying its payment solutions. Collaborating with Alphabet’s YouTube, the platform creates valuable sales opportunities for its merchants by connecting them with a vast global audience.

Moreover, through its partnership with Roblox, Shopify is reaching a younger and more active demographic, opening new avenues for merchant engagement.

Shopify’s Earnings Outlook for 2025

The Zacks Consensus Estimate for Shopify’s 2025 earnings is currently set at $1.48 per share, reflecting a slight decrease over the past month, though it still indicates a year-over-year growth of 13.85%. The revenue forecast for 2025 stands at $10.86 billion, suggesting a year-over-year growth of 22.3%.

Shopify Inc. Price and Earnings Consensus

Shopify Inc. price-consensus-chart | Shopify Inc. Quote

The company has consistently outperformed earnings expectations, beating the Zacks Consensus Estimate in each of the past four quarters, with an average surprise of 22.08%.

Should You Buy or Hold Shopify Shares?

Shopify showcases robust growth in its merchant base and a commitment to expanding its services, which are positive signs for potential investors. The company’s ability to enhance its client relationships is a key growth driver, warranting its current premium valuation.

At present, SHOP shares are trading above both the 50-day and 200-day moving averages, which suggests a bullish market sentiment.

SHOP Shares Above Moving Averages

Image Source: Zacks Investment Research

However, SHOP’s Value Score stands at F, suggesting it may be overvalued currently. In terms of Price/Sales for the next 12 months, SHOP is trading at 14.88X, compared to the broader sector’s average of 6.66X.

Price/Sales Ratio (F12M)

Image Source: Zacks Investment Research

In addition, increasing competition has presented challenges. Shopify is adapting its approach by switching to a three-month paid trial in select markets, aiming to enhance merchant retention, although this shifts may temporarily affect the monthly recurring revenue (MRR) growth for early 2025.

To strengthen its core offerings, Shopify will invest in international growth and B2B enterprise markets, a strategy that could impact cash flow margins in the short term.

Currently, Shopify holds a Zacks Rank #3 (Hold), indicating that investors should consider waiting for a more opportune moment to invest in the stock.