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Shopify's (SHOP) Momentum Likely to Continue in 2021: Here's Why

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Canada-based Shopify (SHOP - Free Report) offers a cloud-based, multi-channel commerce platform for small and medium-sized businesses (SMBs) across 175 countries.

Shopify has been one of the top performing stocks in the technology sector. Shares of this Zacks Rank #1 (Strong Buy) stock has surged 169.9% in the past year compared with industry’s growth of 26.6%. In comparison, the S&P 500 Index rallied 17.1% over the same timeframe.

You can see the complete list of today’s Zacks #1 Rank stocks here.

Shopify’s rally reflects the company’s strong fundamentals and the boost received from e-commerce boom due to the ongoing coronavirus crisis.

Shopify Inc. Price and Consensus

 

Shopify Inc. Price and Consensus

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

 

Markedly, the pandemic resulted in people buying even essentials online due to the shelter in place guidelines imposed worldwide. The trend is unlikely to abate any time soon as the fear of a newer, highly transmissible coronavirus strain looms large.

Moreover, roll out of vaccinations, globally, will be a tedious affair. All these factors are likely to fuel demand for e-commerce services. As a result, Shopify is expected to sustain the momentum in 2021.

The company announced that brands on its platform witnessed a 76% year-over-year increase in sales on Black Friday/Cyber Monday 2020 weekend, reaching $5.1 billion. Rise in online shopping acted as the main catalyst.

In comparison, for the Black Friday-Cyber Monday period in 2019, Shopify platform generated gross merchandise value (GMV) of $2.9 billion.

Rise in E-commerce Spells Opportunity

Retail sector was already undergoing major transformation in the recent years as e-commerce started to gain significant ground compared with in-store buying. The pandemic only accelerated this shift.

Per Mastercard SpendingPulse, retail sales (excluding  automotive and gasoline) in the United States for the expanded holiday season (Oct 11 to Dec 24) rose 3% on a year-over-year basis. Notably, online sales for the expanded holiday season increased 49% year over year in 2020. 

Further, per a Grand View Research report, the e-commerce market, worldwide, is forecast to witness a CAGR of 14.7% between 2020 and 2027. Growing internet and smartphone penetration is likely to further drive this market.

These projections bode well for Shopify. The company is witnessing increases in the number of merchants joining its platform as the retail landscape changes drastically.

Shopify’s Efforts Look Headed in Right Direction

Shopify’s cloud-based platform is well-positioned to cater the evolving demands of merchants at a time when social media, mobile devices and data analytics are drastically altering the online  marketplace.

Shopify is adding more features to its platform to support merchants to develop their businesses. The company’s express theme feature (rolled out at no additional cost) enables merchants, especially cafes and restaurants, to quickly set up online business platforms.

The company’s Shop mobile app, along with other tools and applications like Shopify Plus Admin, Shopify Email, Shopify Flow and Shopify Balance are expected to drive customer engagement, going ahead.

Shop app is a digital online assistant that helps customers quickly navigate checkout and keep a tab on shipment details. The app helps merchants improve their sales numbers by making it easier for customers to shop online.

The launch of Shopify Payments, Shipping and Capital  functionalities have simplified the process payments along with shipping of products and securing of financing for merchants, respectively. Higher investments on expanding robotics and developing fulfillment technology capabilities also augur well.

Shopify platform is also integrated with sales channels from Walmart (WMT - Free Report) Facebook (FB - Free Report) , and Pinterest (PINS - Free Report) . The integrations facilitate merchants to widen business avenues and multiply sales and attract more customers to their stores. This favors Shopify’s prospects in the long run.

To Wrap Up

We believe that Shopify’s merchant-focused approach amid spurt in online shopping will help it dominate the SMB e-commerce space in the long haul.

Further, continued momentum in its business along with strong fundamentals and sound cash position will likely make Shopify a solid bet for investors in 2021. Shopify had cash, cash equivalents and marketable securities worth $6.12 billion as of Sep 30, 2020.

For the fourth quarter of 2020, the Zacks Consensus Estimate for Shopify’s revenues is pegged at $899.2 million. The projected figure suggests year-over-year growth rate of 78%. The consensus estimate for fourth-quarter bottom line stands at $1.24, which indicates 188.37% year-over-year surge.

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