SHOP Stock: What Does Cathie Wood See in Shopify?

Introduction

Canada-headquartered e-commerce firm Shopify [SHOP] boasts a wide product offering, covering everything from digital payments and sales platforms, to in-person point of sale solutions and shipping provision.

Strong performance in the year to date has drawn plenty of investors to SHOP stock, including big names like Cathie Wood. Will this e-commerce play continue to outperform?

What’s New with Shopify?

With better-than-expected Q3 earnings announced on November 12, Shopify reported steady growth in revenues, although it failed to deliver any particularly groundbreaking product developments.

Shopify announced 26% revenue growth in the quarter, marking its sixth consecutive quarter with more than 25% revenue growth excluding logistics.

The company continues to have an upbeat outlook, with Q4 revenues forecast to grow at a mid-to-high-twenties percentage rate again.

Goldman Sachs’ Chief US Strategist David Kostin shared a highly positive outlook for small businesses in 2025, which investors could see as a reason to look favorably on SHOP.

Shopify on the Up

It has been a year of two parts for SHOP, with a relatively steady decline in the share price until the beginning of August 2024.

Since hitting a 52-week low on August 5, SHOP has rallied 121.85% as of December 16. This includes a 28.84% jump following the publication of Q3 earnings on November 12.

SHOP stock is up 48.83% in the year to date.

How Is Shopify Faring Against the Competition?

Shopify is a big name in a challenging market, counting giants like Amazon [AMZN] among its competitors. Another competitor, SAP SE [SAP], is a Germany-based enterprise software service provider that is somewhat closer to Shopify in terms of market cap. 

Source: Yahoo Finance

It is worth noting that Shopify has beat EPS forecasts in all of its earnings reports this year, while SAP missed Q1 2024 EPS expectations by $0.16 per share. Amazon has also beat earnings in all three quarters year-to-date, with larger margins than Shopify.

Both competitor stocks are also outpacing SHOP’s year-to-date gains — with SAP up 65.69% and AMZN up 53.30% — and showing steadier growth.

That said, Shopify’s projected revenue growth outstrips both Amazon and SAP, and its market cap potentially has some catching up to do.

SHOP Stock: Is Shopify Still a Buy?

E-commerce continues to be at the forefront of investing news, but with Shopify’s meteoric rise in recent weeks, does SHOP have room to grow, or could its gains be set to plateau?

The Bull Case for SHOP Stock

With nine ‘strong buy’ and 21 ‘buy’ ratings on SHOP, according to Yahoo Finance, there is certainly a strong case for this e-commerce play.

Investors looking to big-name funds for tips may be interested to hear that SHOP was Cathie Wood’s largest overall holding until the end of Q3 2024. At 4.0% of her overall equity portfolio, it remains her eighth-largest holding.

At 5.0% its portfolio, SHOP is Baillie Gifford’s fifth-largest holding, and has netted the fund a 324.8% gain so far.

Sands Capital, Polen Capital and Ron Baron also increased their SHOP stakes in Q3.

Investors concerned about SHOP’s volatility might take comfort from the consistency with which the company has been matching or beating guidance in recent earnings reports. In fact, Q3 2024 marked its ninth consecutive earnings beat.

In a sector that many analysts have earmarked for further growth, such outperformance could be a reason to remain bullish on SHOP.

Unlike some of its competitors, the scalability of Shopify’s solutions mean they can attract both small and medium-sized enterprises (SMEs) and larger corporations. It also means that clients can continue using the company’s solutions even as they grow, leading to high customer retention.

Its low- to no-code model means anyone can use the platform, and it is likely to continue capitalizing on the creator economy. Forbes has reported the creator economy is projected to grow from $191bn in 2025 to $528bn by 2030, which could be good news for Shopify investors if it comes to fruition.

The Bear Case for SHOP Stock

While a majority of analysts rate SHOP a ‘buy’, 20 have it rated as ‘hold’ and two recommend selling. Here are some reasons caution could be advisable when considering investing in Shopify.

As with any play in the technology space, it is important to remember Shopify is competing in an aggressive field. In addition to Amazon, giants such as WooCommerce and BigCommerce [BIGC] continue to expand their offerings and target markets, encroaching on Shopify’s territory.

Amazon in particular has said it will expand further into the creator space — for example, with its investment in creator-focused platform Spotter. This could spell trouble for Shopify’s dominance in that arena.

Consumer spending is notoriously fickle, particularly in a context of macroeconomic uncertainty.

SMEs disproportionately suffer in recession, as they lack the financial resilience of bigger firms. Shopify’s larger enterprise customers may not be enough to keep revenues rising if individual merchants close their Shopify stores.

Shopify is well-known for being a volatile play — it tanked 81.08% between the end of 2021 and October 14, 2022, for example. Investors would be forgiven for worrying its recent climb could push it into overvaluation, especially when coupled with external headwinds. 

Conclusion

Shopify has certainly been going from strength to strength in the latter third of 2024, and Q3 earnings seem to suggest its success could continue. The broader e-commerce space is performing well, but potential headwinds include macroeconomic trouble down the line affecting Shopify’s independent merchants.