Ever since Citron publicly questioned the Shopify Inc (NYSE: SHOP ) business model, the stock ascent stopped. Although its shares are still down around 15% this quarter, Shopify stock is bouncing from the low-$90s range. The online retailer's success on Black Friday demonstrates the growth potential for this company.
Shopify reported revenue growing an astounding 72% year-over-year to $172 million. Much of the improved numbers came from the 65% subscription solutions revenue growth, to $82.4 million.
Despite the solid results, Shopify still lost $12.7 million. Looking ahead, management expects revenue will top analyst consensus estimates at between $656 million to $658 million. It will lose $55.5 million to $57.5 million.
Investors cannot point to the earnings loss for the year as a reason for more downside for the stock. Amazon.com, Inc. (NASDAQ: AMZN ) lost money for years, and its share price went up in that time.
Shopify owes positive quarterly earnings results to the GMV (gross merchandise volume) growth of 69%. The company is hiring more staff to support its business expansion.
It is acquiring larger facilities so that Shopify may have the capacity for its ever-expanding client list. SHOP is right in putting its profits back into the business. It is choosing to expand the business instead of worrying about how its balance sheet looks like.
Merchant List Grows
The short may depend on Shopify's merchant list. If the suppliers are foreign fly-by-night ones, then bears are right in betting against the company. Unfortunately for the bears, the merchants are as legitimate as those who sell goods on Amazon.com. Even those sellers who are based in China will not leave when the Shopify platform works so well in managing the online storefront.
Shopify posted 40 stunning e-commerce stores built using Shopify . More success stories like those will keep coming.
Shopify built an easy platform for businesses. Its moat, compared to setting up a shop on Amazon.com or eBay Inc (NASDAQ: EBAY ), is how easy it makes it for businesses to start their online presence. No competitors exist that may offer what Shopify has for the small business owner.
Shopify's Response to Citron
On Nov. 16, the company announced that over 500,000 merchants in 175 countries sold over $1 billion in gross merchandise volume during the Black Friday and Cyber Monday weekend. This is a milestone for SHOP and negates the bearish attack against the company. There is still a short float of 8.28% on Shopify stock.
Black Friday's traffic on Shopify validates the site's unique business model strength. Sales topped $1 million a minute, almost double that of last year's peak per-minute rate of $556,000. Traffic from mobile accounted for two thirds of all orders. The rest of the sales came from desktop channels (34%)
Looking ahead, if merchants follow Shopify's analysis on the e-commerce sales , expect another spike in GMV sales on Dec. 23 ("Super Saturday"), Boxing Day on Dec. 26 and New Year's, between Dec. 31 to Jan. 1.
Takeaway on Shopify Stock
Shopify has unfavorable valuation metrics, which is typical for any dotcom growing at an incredibly impressive rate. The company is in the midst of a seasonally strong period. The upcoming holiday period will draw traffic that is similar, if not higher than, Black Friday.
Unless markets, and technology stocks in particular, sell off, chances are low that Shopify stock will fall by much. And if it does, existing shareholders may end up buying more.
Disclosure: Author owns no shares in any of the companies mentioned in this article.
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