Will Merchant Growth Boost Shopify’s Stock Price?

Shopify’s stock price was boosted by strong results throughout 2023. Even though its first-quarter guidance disappointed investors in February, the e-commerce platform is well positioned to grow its customer base. merchants thanks to a set of artificial intelligence (AI) tools that give you a competitive advantage.

Shopify (SHOP) launched dozens of new features earlier this year, including an AI-powered media editor that can improve product images and semantic search; understand purchasing behaviors; and allow users to enter more intuitive search queries.

However, this isn’t Shopify’s first foray into AI.

“We can’t talk about 2023 without mentioning AI,” Chairman Harley Finkelstein said on the fourth-quarter earnings conference call in February. Last July, for example, the company added Sidekick to Shopify Magic, its range of artificial intelligence tools. Sidekick is an AI assistant that’s built in as a button in Shopify and can answer any queries merchants may have, including about sales trends.

Despite Shopify’s AI boost, “superinvestor” interest in the stock was quite low in the fourth quarter of 2023. While seven major investors bought $102.3 million worth of Shopify shares, five They sold 151.4 million dollars.

Two also sold $331.1 million in the first quarter of 2024, according to the most recent 13F: Cathie Wood cut her stake by 23.6% in the first three months of the year, selling 1.42 million shares, while that Baillie Gifford cut its stake by 4.3%, unwinding. 2.78 million shares.

Shopify reports record numbers in 2023

In Q4 2023, Shopify’s gross merchandise volume grew 23% to $75.1 billion, while revenue rose 24% to $2.1 billion, the first time quarterly sales surpassed the mark. of the 2 billion dollars. Excluding Shopify’s logistics business, the revenue growth rate was 30%, marking the fifth consecutive quarter of growth exceeding 25%. Earnings were $0.34 per share, compared to just $0.07 per share in the same period a year earlier.

The strong quarter was boosted by a record holiday period between Black Friday and Cyber ​​Monday, during which merchants sold $9.3 billion worth of goods, with 55,000 reporting their biggest selling day ever.

Shopify CFO Jeff Hoffmeister said the company aims to deliver “a compelling combination of growth and profitability” this year.

“As we look to 2024, our focus remains on driving innovation in an ever-evolving business landscape, delivering products that will drive our merchants’ businesses,” Finkelstein said in the earnings press release.

All eyes on the impact of AI in the first quarter

Shopify’s stock price fell 13.4% on February 13, the day it released its fourth-quarter report, due to relatively weak guidance issued for the first quarter of 2024. The company has called for growth year-over-year revenue is below 20 on a GAAP basis and in the low 20s, excluding the impact of its logistics business.

Free cash flow margin growth is forecast to be “in the high single digits.” Hoffmeister noted on the fourth quarter earnings call that the first quarter has historically been the company’s lowest revenue quarter, which impacts its free cash flow margin.

Investors may be interested to know how AI plans are helping to increase their merchant base and boost their sales.

According to Emily Amor, ecommerce strategist and SEO manager at Digital Darts, a self-described “Shopify optimization agency” based in Australia, the Magic toolset gives the company a competitive advantage.

“They are certainly game-changers for many store owners. They help shorten business operations such as reporting and inventory tracking. Many of these tasks fall into the category of “too much time” for time-poor and time-poor store owners who often operate without a marketing team or resources to support them,” Amor told OPTO.

AI Theme Should Drive Shopify Stock Price Up

After hitting a 52-week high of $91.57 on Feb. 12, the day before fourth-quarter results were reported, Shopify’s stock price closed the next day at $77.18 and was on $77.37 at the close on May 6. The stock is up 20.2% last year and is down 0.7% so far this year.

In addition to holding Shopify shares directly, another way to gain exposure to the stock is through thematic ETFs.

The Global X E-commerce ETF (EBIZ) has allocated 3.1% of its portfolio to Shopify as of May 3. The fund is up 42.6% last year and 17.4% so far this year.

The ROBO Global Artificial Intelligence ETF (THNQ) has allocated 1.8% of its portfolio to Shopify. The fund is up 24.2% last year and 10.1% so far this year.