Andrew Willis: Solid, expectation-beating third-quarter results from Shopify SHOP were a relief for investors, especially amid this rough year the tech sector has been having so far. We see some upside for Shopify stock, but its high Uncertainty Rating doesn't help raise our conviction level. After recent layoffs and fears of stagnating growth in e-commerce, this quarter's earnings were a welcome surprise, but a lack of guidance from management doesn't tell us whether the company's turned the corner.
Perhaps Shopify is achieving its dream of becoming a one-stop shop for small and midsize businesses, with its robust e-commerce platform becoming a core to a variety of related add-ons, including shipping. And as customers continue to integrate with add-ons, switching costs are likely to go up, which make up the company’s narrow moat.
Senior equity analyst Dan Romanoff says that after establishing itself as a leader in the small and medium-size business space, Shopify has been pushing more into the enterprise market with Shopify Plus, which could bring some success but also competition from the likes of Salesforce and Adobe. Great aspirations, after all, come with great risk.
Adding to the uncertainty, we think the fact that the incoming CFO has been a prominent investment banker suggests Shopify will step up its acquisition efforts. At least one thing's for certain: The rout in tech stocks this year has lowered prices to help make those ambitions a reality.
For Morningstar, I'm Andrew Willis.
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