Shopify Stock Primed for Comeback in 2024 After Standout Q3 Earnings

Dhaneshwar Prasad

Shopify just gave investors a glimmer of hope after a painful 2022. With strong Q3 results highlighting an inflection point in profitability, SHOP stock appears ready to rebound in 2024.

The leading e-commerce platform delivered revenue growth of 25% and swung to an operating profit in its latest quarterly report. This demonstrates Shopify’s resilience as it emerges from the pandemic hangover.

Despite economic uncertainties, Shopify is poised to ride several tailwinds supporting robust growth over the long-term. With improving efficiency, investments in Shopify now could pay off handsomely when the next bull market arrives.

Resilient Growth Reflects Shopify’s Stickiness

Shopify’s growth remained remarkably steady in Q3 even as e-commerce demand showed signs of slowing across the retail sector.

The company grew revenue to $6.65 billionin the twelve months ending September 30, 2023, up 26.81% year-over-year. Monthly Recurring Revenue expanded 15% as more merchants joined the platform. This reflects the mission-critical nature of Shopify’s e-commerce solutions.

Shopify now boasts over 2 million merchants using its platform, more than double from pre-pandemic levels. Impressively, the pace of new merchant additions accelerated in Q3, up 26% versus a 23% increase last quarter.

“The solid increase this quarter in merchants joining Shopify is encouraging for the long-term, as our data shows that new cohorts tend to grow with Shopify over time,” explained CFO Jeff Hoffmeister.

While Shopify relies heavily on small and medium businesses, it is making inroads with larger enterprises. Retail giants like Netflix, FIGS, and Taylor Guitar rely on Shopify Plus, the company’s enterprise e-commerce offering.

Research firm eMarketer estimates Shopify now holds a 10.3% share of U.S. retail e-commerce sales, positioning it to thrive as online shopping grows.

Margin Expansion Provides Profit Inflection

In addition to steady top-line growth, Shopify made significant strides expanding profitability in Q3. This margin improvement appears sustainable, setting up stronger earnings growth in 2024.

Total gross margin increased 410 basis points versus Q3 2021 to 52.4%. Merchant solutions revenue now makes up a larger portion of the mix, driving margins higher. Merchant solutions carry 70%+ gross margins thanks to payments monetization.

The operating margin turned positive at 4.4% compared to -17.8% in the year-ago quarter. Shopify cut sales and marketing expenses by 26% as it tightens budgets. R&D spending also fell 20%.

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Former Sony professional turned multi-business owner and stock investor, Dhaneshwar leverages his MBA to produce market, IPO and biz content and personal investments on
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