Shopify Stock Upgraded, Claws Above 50-Day Moving Average

IBD Stock Analysis

Stock's Composite rating is 85 out a maximum of 99

The data displayed was taken at 12:49PM on April 12, 2023.

IBD's Stock of the Day is Shopify (SHOP), as the ecommerce company soared above its 50-day average following a Wednesday analyst upgrade. Shopify is a controversial stock despite stiff competition.

Shopify, a Canadian company founded in 2006, creates e-commerce sites for small businesses and works with other companies to manage digital payments and shipping. Shopify competes with Amazon.com, PayPal Holdings (PYPL), Wix and BigCommerce.

Shopify shares rose today by 4.3%, to 46.70. In 2023, Shopify shares have increased by 34% compared to the Nasdaq’s 15% increase in 2023.

Shopify stocks have a 54.76 entry point.

Earnings Due for Shopify Stock

Investors who are more aggressive could take a position while the handle is still forming at 48.36. The handle is in the lower part of the base which is a flaw.

Shopify's earnings are expected to be released in early May. Investors should be cautious before the earnings report. Call options could be used as a strategy to manage earnings.

Andrew Boone, an analyst at JMP Securities upgraded Shopify on Wednesday from market perform to market outperform with a 65-dollar price target.

In a client note, he stated that "after analyzing the operating expenses structure across website builders and assessing third-party traffic data and speaking with professional website developers on these platforms, we reaffirm our view that Shopify continues to be the leader in commerce enabledment and continue to take share."

Shopify also plans to build a U.S.-based distribution network that will store and ship goods for its merchant clients. The stock has been affected by the rising investments in the distribution network.

Amazon Expands 'Buy with Prime' for Merchants

Amazon has also launched a brand new initiative. Amazon offers its vast distribution network to merchants outside the company. As part of the Buy With Prime program, Amazon offers its product fulfillment services to merchants that do not sell products on their website.

UBS analyst Kunal Madhukar has a sell recommendation on Shopify.

In a recent client note, Madhukar stated that "We have a more negative view of SHOP, after having hosted a call with Shopify merchants who are using Buy with Prime since June 2022." "BwP is improving. BwP is constantly being tested and improved since its launch as a pilot in April 2022. It offers merchants the ability to add Amazon product review, get customer data and the ability to offer discounts to Amazon Prime members."

Analysts say that Shopify will reap the benefits of its investments as it targets bigger merchants. Shopify Plus, its premium service, targets large brands.

In a recent report, Deutsche Bank analyst Bhavin Shah stated that "we remain bullish about Shopify's prospects in the near-term primarily due to the enterprise opportunity." Shopify's agencies and partners predict that enterprise adoption of Shopify Plus will accelerate in 2023. "Many leading brands are actively seeking to migrate, or in the process of doing so from legacy/competing systems."

SHOP Stocks Gained during Pandemic

Lisa Ellis, an analyst at MoffettNathanson also sees Shopify as a competitor for market share.

In a note, Ellis stated that selling shovels to gold miners during an ecommerce gold rush was the ideal business. Shopify has seized this opportunity and is now powering 10% of U.S. online commerce. The gold rush is over. Shopify's multiplier has decreased as investors digest the transition from a story of secular growth to one with increased capital intensity and concerns on profitability."

According to IBD Stock Checkup, Shopify's stock has an IBD Composite rating of 85, out of 99 possible.

IBD's composite rating combines five proprietary ratings into a single, easy-to-use score. The best growth stocks also have a Composite rating of 90 or higher.

This rating is based on the price and volume fluctuations of a stock in the last 13 weeks. The current rating shows that more funds are purchasing than selling.

Shopify Stock: Revenue Forecasts for 2023 Missed

On a scale of A+ to F, the rating measures institutional buying and sales in a particular stock. A+ indicates heavy institutional purchasing; E signifies heavy selling. Consider C as neutral.

Shopify reported that it earned 7 cents a share, on a adjusted basis. This is down 50% compared to a year ago. Shopify's revenue rose by 26%, to $1.7 billion.

Analysts had expected Shopify's earnings report to show a loss of one cent on revenues of $1.65 Billion. Shopify had earned 14 cents on $1.38 billion in revenue a year ago.

The company expects revenue growth to be in the "high teens" for the first quarter 2023. Analysts predicted a revenue increase of more than 20%. Shopify increased contract prices in January.