This SHOP Stock Forecast article was written by Miles Grauberd – Financial Analyst at I Know First.

Highlights

• Shopify has Stellar Q3 2024 Earnings Report, Revenue up 26% year-over-year.
• Shopify Maintains Position as Leading E-commerce Platform.
• SHOP Stock up over 337% since 2022 lows.
• Expected Growth to Decelerate in 2025.

Overview

Shopify is a premier global commerce platform empowering businesses of all sizes to create, grow, and manage their online and offline sales seamlessly. Operating in 175 countries, Shopify provides an all-in-one, cloud-based solution for building online and physical retail stores, managing inventory, processing payments, and optimizing operations with advanced analytics tools. With over 8,300 employees, millions of merchants, 13,000+ apps in its ecosystem, and approximately $1 trillion in total sales, Shopify continues to lead the e-commerce industry with innovation and robust merchant support.

Shopify’s Robust Financials

In Q3 2024, Shopify demonstrated strong financial performance, showcasing its resilience and market leadership in the e-commerce sector.

Revenue and Profitability

• Revenue reached $2.16 billion, up 26% year-over-year.
• Gross profit increased to $1.12 billion, a 24% year-over-year growth.
• Both subscription solutions and merchant solutions revenue grew by 26% year-over-year.
• Revenue grew over 45% in the Europe, Middle East, and. Africa Region.
• Revenue grew in all major regions.

Cash Flow and Market Performance

• Free cash flow margin expanded to 19%.
• Stock price surged 25% following the earnings report, reaching its highest level since January 2022. 
• Year-to-date stock performance shows a 39.93% increase

Valuation Considerations

• Current P/E ratio stands at 102.47, significantly higher than competitors like GoDaddy (P/E of 14.92)
• The high P/E ratio suggests investor optimism about future growth but also indicates potential overvaluation

Historical Context

While Shopify’s recent performance is impressive, it’s important to note the company’s past challenges:

• Q1 and Q2 2022 saw significant net losses of $1.4 billion and $1.2 billion respectively

Revenue by Region:

Revenue by Source:

Market Position

As of November 2024, Shopify boasts over 2.1 million daily active users, solidifying its position as a dominant player in the global e-commerce space. The platform holds a 24% share of e-commerce stores worldwide and a commanding 30% share within the United States, demonstrating its widespread adoption and influence. Operating in a U.S. e-commerce market valued at $6 trillion, Shopify’s extensive reach and market penetration underscore its critical role in shaping the future of online retail.

E-commerce market share in the US – Sep 2024

Shopify’s Competitive Edge in E-Commerce

Shopify has established itself as a leader in the e-commerce industry by offering a comprehensive, user-friendly platform that caters to businesses of all sizes. Its all-in-one solution encompasses website creation, marketplace management, product sales, and integrated marketing tools, providing a seamless experience for merchants.

Key Differentiators

1. User-Friendly Interface: Shopify’s intuitive user interface (UI) sets it apart from competitors, making it accessible to entrepreneurs with varying levels of technical expertise.
2. Risk-Free Trial: The platform offers a 3-day trial without requiring credit card information, allowing potential users to explore its features without financial commitment.
3. Cost-Effectiveness: Shopify’s total cost of ownership (TCO) is 36% lower than WooCommerce, its primary competitor.
4. Enhanced Security: In contrast to WooCommerce’s 33 reported vulnerabilities in 2023, Shopify maintains robust security measures, including PCI DSS Level 1 compliance and 24/7 monitoring.
5. Multichannel Selling: Shopify excels in extending reach beyond websites, enabling integration with various social media platforms and marketplaces.
6. Extensive App Ecosystem: With over 8,000 third-party apps compared to Wix’s 500, Shopify offers greater customization and functionality options.
7. Payment Flexibility: Shopify supports 100 different payment methods, surpassing Wix’s 70, thus expanding accessibility for global customers.

Financial Implications

Shopify’s product differentiation strategy has translated into strong financial performance. The platform’s user-friendly approach and comprehensive features have contributed to its expanding merchant base and revenue growth. By addressing key main points in e-commerce, such as security concerns and multichannel selling, Shopify has positioned itself as a preferred choice for businesses looking to establish or expand their online presence.

The company’s focus on continuous innovation and user experience improvements reinforces its market position and supports its valuation in the competitive e-commerce sector. As Shopify continues to evolve its offerings and address emerging market needs, it remains well-positioned to capitalize on the growing global e-commerce market.

Shopify’s Impressive Growth: What’s Next for the E-Commerce Giant?

Shopify’s impressive stock rally has been partly fueled by a broader market recovery. Since the 2022 lows, the S&P 500 has surged 70.96% as of November 24, providing a favorable environment for Shopify’s ascent. However, Shopify’s growth story stands strong on its own merits.

In 2024, Shopify achieved a remarkable 125% year-over-year increase in stores, jumping from 2.1 million in 2023 to 4.8 million. This turnaround follows a challenging 2023 when the number of stores declined by 15%. New merchant acquisitions and expanded store counts have driven this resurgence, highlighting Shopify’s resilience and appeal.

Despite these gains, Shopify faces tempered expectations for 2025. The company’s Q4 EPS is forecasted at $0.43, with revenue expected to reach $2.72 billion—both very good growth figures. However, projections suggest slower momentum in early 2025, with earnings and revenue not anticipated to recover current levels until Q3 2025.

Shopify’s recent stock performance raises concerns about potential overvaluation. Since hitting its lows in 2022, the stock has surged over 337%, which could make prospective investors cautious about entering at current levels. This sharp increase, coupled with slowing growth projections for 2025, suggests that Shopify may be overvalued at this stage. Given these factors, one should be cautious about investing in Shopify stock in the short term.

While Shopify’s long-term prospects remain robust, 2025 could see a period of moderate growth as the company consolidates its rapid expansion. This transitional phase underscores the importance of tempering near-term expectations while recognizing Shopify’s enduring market leadership.

Shopify’s Total # of Stores:

SHOP Stock Forecast: Analyst’s Consensus:

The market analyst’s forecast SHOP to be at an average $115.71, with a high of $145 and a low of $78. Analyst recommendations are primarily “Buy” with a lot of “Hold” which could indicate accumulation in the stock price.

Outlook for 2025

For 2025, I recommend a Hold rating on Shopify. While the company’s innovative and user-friendly platform continues to outshine competitors and its financial performance continues to impress, there are cautionary signs. In addition to their P/E being 102.47 which is significantly higher than its competitors, Shopify’s guidance for the coming year points to slower growth, which could dampen investor sentiment and potentially lead to a price pullback. Although Shopify remains a strong long-term play in the e-commerce sector, current valuations suggest that patience may be warranted. Waiting for a more favorable entry point could maximize potential returns for investors.

It’s important to note that I Know First’s stock-picking AI shows a moderate buy which reinforces my outlook on Shopify. The light green indicates a mildly bullish 1 month and 3 month forecast, while the darker green signifies a strong bullish signal for the one-year projection. 

Past Success with SHOP Stock Forecast

I Know First has been bullish on the SHOP stock forecast in the past. On September 10th, 2024 the I Know First algorithm issued a 3-month forecast for SHOP stock price and recommended SHOP as the best stock to buy based on deep learning. The AI-driven stock prediction was successful on a 3-month time horizon, resulting in a 66.52% gain.