IBD Stock Analysis
- Stock moves into buy zone out of cup with handle; buy point at 1,112.51
- Shares were consolidating before forming a handle earlier this month
- Relative Strength Rating is 92 out of possible 99; stock is on Leaderboard
Industry Group Ranking
Emerging Pattern
Cup with Handle
* Not real-time data. All data shown was captured at
1:14PM EST on
12/16/2020.
Shopify stock is the IBD Stock Of The Day as the provider of e-commerce software and services breaks out from a proper cup-with-handle base.
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Shares in Shopify (SHOP) on Wednesday moved into a buy zone above a 1,112.51 entry point. Shares jumped 7.8% to close at 1,157.31.
KeyBanc Capital Markets analyst Josh Beck in a report published Wednesday speculated that Shopify could garner a new e-commerce fee from merchants, similar to larger rival Amazon.com (AMZN).
“Shopify has quietly expanded Shop Pay from a checkout wallet to a consumer-facing Shop App that offers package tracking and recommended product browsing,” wrote Beck. “Shop Pay has 60 million-plus buyers.”
Shopify Stock: New Revenue Stream From Consumer App?
He added: “While monetization details are limited at this early juncture, we see a future where Shopify could earn a referral fee (for example, Amazon generally charges a 15% take rate for many of Shopify’s merchant categories). Assuming Shop App is about 20% of total payment volume an incremental take rate would imply a $100 million revenue opportunity.”
Meanwhile, Business Insider reported on Monday that Amazon Chief Executive Jeff Bezos is concerned about Shopify’s growth trajectory.
Shopify stock corrected some 27% in early September from an all-time high, then clawed back before retreating 22% in October. The stock didn’t undercut the Sept. 17 low of 839.40 on the second leg down, so it did not form a classic double-bottom base. Instead, the decline from mid-October was the start of a new base, a cup with handle.
The relative strength line for Shopify stock has drifted lower since early July, signaling underperformance vs. the S&P 500 index.
But Wednesday’s gain could show that Shopify stock is poised to rally heading into 2021.
Further, Shopify stock on Wednesday was added to the IBD Leaderboard. Leaderboard is IBD’s curated list of leading stocks that stand out on technical and fundamental metrics.
Shopify Premium Service Targets Big Brands
Canada-based Shopify enables merchants to build and manage their online businesses. While mainly focused on small- and medium-size merchants, its fast-growing premium Shopify Plus service targets big brands.
Shopify sets up e-commerce websites for small businesses, and partners with others to handle digital payments and shipping. Also, the e-commerce firm has stepped up business lending amid the coronavirus crisis.
The e-commerce platform provider holds a Relative Strength Rating of 92 out of a possible 99, according to IBD Stock Checkup.
Shopify stock, meanwhile, has a C- Accumulation/Distribution Rating. This rating analyzes price and volume changes in a stock over the past 13 weeks of trading. The rating, on an A+ to E scale, measures institutional buying and selling in a stock. A+ signifies heavy institutional buying; E means heavy selling. Think of the C grade as neutral.
Some analysts draw a distinction in rating Shopify as a subscription software company versus being a digital payment stock.
Susquehanna Financial analyst John Coffey initiated coverage on Shopify stock with a neutral rating on Dec. 2.
Shopify Stock: A Payments Or Software Company?
“From bags by Louis Vuitton to bags of Beer Nuts, you can buy nearly anything on SHOP’s million-plus websites,” wrote Coffey in the report. “For more than a decade, SHOP has been known to online retailers as the ‘brand behind the brand’ that offers merchants a turnkey solution for getting online and selling.”
He added: “But Shopify Payments, originally an ancillary service, is now the company’s largest source of revenue, not subscription fees. Accordingly, we think it is appropriate to value SHOP’s payment assets separately and against traditional online payments companies such as Adyen, PayPal and Square (SQ).”
On Black Friday, merchants on its e-commerce platform brought in sales of $2.4 billion, up 75% from a year earlier, Shopify said.
Further, Shopify has forged marketing partnerships with TikTok, Walmart (WMT), Facebook (FB) and Pinterest (PINS).
Shopify has $6 billion in cash on its balance sheet, leading to speculation it could make an acquisition.
The e-commerce firm acquired 6 River Systems, a maker of autonomous warehouse robots, for $450 million in late 2019. That marked its biggest acquisition to date.
Follow Reinhardt Krause on Twitter @reinhardtk_tech for updates on 5G wireless, artificial intelligence, cybersecurity and cloud computing.
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