Shopify Inc (TSX:SH., NYSE:SHOP)’s share price rebounded this week, curbing a slump in September, as the e-commerce and payment processing company prepares to release its results for the third quarter later this month.
Investors who invested in Shopify five years ago have seen their share value triple during that time.
The price of its shares on the New York Stock Exchange has surged 307.4% since October 2018, when its shares were trading at approximately US$13.52 per share. The e-commerce company also trades subordinate shares on the London Stock Exchange.
Analysts remain broadly optimistic about Shopify’s ability to create strategic value, it being the second-biggest player in the payment processing space by market value, forecasting projected sales growth despite the contraction in its growth margin.
Shopify’s share price was eroded this September, following the release of its results for the second quarter, amid the wider tumult in the retail and direct-to-consumer market.
Its New York-listed shares bucked that trend this week, as their price per share has risen by 5.88% in the past five days of trading, to US$55.08 on Wednesday, registering a marked uptick in its stock.
The e-commerce platform said this month that it had formed a strategic partnership with branding specialist WPP PLC (LSE:WPP), adding to its recent purchase of Faire, an online wholesale marketplace for retailers, and last year's merger with Deliverr, while it continues to build a portfolio of patents in the augmented reality space.
According to a statement, the partnership with branding consultancy business WPP will bring Shopify’s platform to the British communications company’s network of 13,500 commerce specialists in order to help brands scale faster.
Shopify is expected to collaborate with WPP to introduce new product solutions in the packaged goods, health and wellness, and fashion sectors. The companies will also roll out a global training and certification pathway that could create 300 certified Shopify specialists in WPP’s network within the first year.
Shopify is seeking to patent an augmented reality interface, which might allow it to provide users with assistance on returns, leaving reviews, reporting defects and checking warranties and user manuals, according to reports citing patent filings.
In a broker note published on Monday, Berenberg Bank identified Shopify as one of the main competitors in the software and IT services space for financial technology.
With a market capitalisation of approximately US$65.9 billion, it remains one of Canada’s largest three public companies by market cap.
The bank’s analysts listed Shopify among the large and established companies that emerging players such as Four would need to compete against in what they described as the “highly competitive payment processing space”.
Shopify announced in August that its total revenues had increased by 31% in the second quarter, year over year, to US$1.7 billion, and that it remained cash-flow positive for the third consecutive quarter, with gross merchandise volume rising 17% to US$55 billion, and gross payments volume growing to US$31.7 billion.
According to analysts at Berenberg, Shopify is forecast to generate 2023 sales of US$6.94 billion, up from US$5.6 billion in fiscal 2022, with those sales expected to rise to US$8.25 billion in 2024, putting it only behind Block Inc (NYSE:SQ) in terms of market size for an integrated payment provider.
Shopify’s growth margin for 2022-23 was 24%, but that is expected to fall to a free cash flow margin of about 9% in 2023, with a projected margin of 11% the following year, according to analysts.
Its enterprise value was 100.2 times its projected earnings before interest, taxes, depreciation, and amortisation (Ebitda) in 2023, Berenberg analysts said, which they forecast will drop to 63.2x Ebitda next year.
Shopify is expected to announce its results for the third quarter ending September 30 at the end of October.