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Shopify (SHOP) stock ripped higher on Aug. 5 after the e-commerce giant reported blowout Q2 earnings that handily beat Street expectations, prompting company President Harley Finkelstein to call it “a monster quarter.”
The company posted $3.58 billion in revenue — up a remarkable 34% year-over-year — on $0.42 in earnings per share (EPS), also up significantly versus last year.
Despite the post-earnings surge, however, Shopify shares remain down about 9% year-to-date.
Shopify Attributes Q2 Strength to AI Adoption
In the earnings release, Shopify’s management highlighted rapid adoption of artificial intelligence (AI) as a major engine behind Q2 strength.
As merchants embraced automated tools, storefront traffic and order conversions tripled on a year-over-year basis.
Crucially, the company’s free cash flow (FCF) margin stood at an exciting 18%, indicating its asset-light model is firing on all cylinders.
Large enterprise merchants also drove a 32% growth in SHOP’s gross merchandise volume (GMV), reinforcing that it’s finding success in stealing high-profile brands from Salesforce (CRM) and Adobe (ADBE).
Note that Barchart currently holds a “40% BUY” opinion on SHOP shares, indicating technical momentum is now turning in favor of the Canadian firm.
Is It Too Late to Invest in SHOP Shares?
On Wednesday, management raised its guidance for the current quarter as well, suggesting Shopify shares may not be out of juice just yet.
For Q3, the company sees revenue growth in the low-thirties percentage range, materially higher than the 26% that analysts had called for.
More importantly, SHOP believes its free cash flow margin could even climb into the low-twenties in the third quarter as enterprise merchants continue to adopt its artificial intelligence tools.
That said, investors should note that Shopify is not an inexpensive name to own at current levels.
At the time of writing, it’s trading for more than 83x forward earnings — a massive premium on rival Etsy (ETSY), which is trading at about 23x only.
What’s the Consensus Rating on Shopify?
What’s also worth mentioning is that Wall Street firms are no longer particularly bullish on SHOP stock.
According to Barchart, while the consensus rating on Shopify remains at “Strong Buy,” the mean price target of $152 does not signal meaningful upside from current levels.
On the date of publication, Wajeeh Khan did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
