Shopify Sharply Lower Despite Blowout Quarter

Shopify Inc. (SHOP) is trading lower by more than 7% in the first hour of Wednesday’s U.S. session despite beating Q4 2020 top and bottom line estimates. The e-commerce juggernaut earned $1.58 per-share during the quarter, $0.37 better-than expected, while revenue surged an astounding 93.6% year-over-year to $977.7 million, more than $60 million above consensus. The stock gained more than 30% in the weeks heading into the report, lifting to another all-time high.

Incredible Growth Curve

The rapid shift into online sales as a result of the pandemic underpinned subscription solutions revenue gains of 53% year-over-year while merchant solution revenue grew 117%. No specific guidance was offered but the company expects ‘rapid revenue growth’ to continue in 2021. The Q4 revenue surge matched spectacular results reported in Q2 and Q3, highlighting rapid business momentum that is showing no signs of slowing down.

Shopify expanded its payment systems to Facebook Inc. (FB) and Instagram last week, marking another expansion of its rapidly growing footprint.  As the company noted “we’re expanding Shop Pay, the fastest and most secure way to shop online, to all Shopify merchants selling on Facebook and Instagram. With Shop Pay now available as a fast and secure payment option on Facebook, people also get access to industry-leading order tracking and carbon offsets from their deliveries.”

Wall Street and Technical Outlook

Wall Street consensus has grown more cautious due to historic share gains, with an ‘Overweight’ rating based upon 10 ‘Buy’, 2 ‘Overweight’, 12 ‘Hold’, and 2 ‘Sell’ recommendations. Price targets currently range from a low of $600 to a Street-high $1,810 while the stock is now trading about $100 above the median $1,270 target. The sell-the-news reaction could settle around the median price before committed buyers return in force.

The stock rallied above the February 2020 high at 594 in April and took off in a momentum-fueled advance, finally stalling near 1,150 at the start of September. Positive price action cleared resistance in December, yielding a 6-week support test, followed by a vertical buying wave that added more than 400 points into the news.  It’s not particularly overbought due to the three-month trading rnage and this selling wave is unlikely to mark a major trend change.

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Disclosure: the author held no positions in aforementioned securities at the time of publication.