Shopify Has Dipped Into Earnings as Valuation Concerns Linger

Shopify (NASDAQ:SHOP) stock has dropped into a technical correction as investors sold software companies amid ongoing "SaaSpocalypse" concerns. It fell to a low of $154.20, about 13% below its year-to-date high of $180.80. Focus now shifts to its upcoming earnings report, which should provide more color on its business.

Shopify’s Earnings to Give Cues on Growth

Shopify, the biggest e-commerce software company in the world, will be in focus this week as it publishes its financial results, which will provide more hints on its revenue and profitability growth. 

The results will also provide hints on the impact of AI agents on its business. It recently reached a major partnership with Meta Platforms’ Muse. This partnership will allow Muse to browse Shopify-powered stores and complete purchases on behalf of users. It will be built on Shop Pay, its one-tap checkout.

The most recent results showed that Shopify’s business continued growing in the second quarter despite the SaaSpocalypse fears. Its revenue jumped to $3.58 billion from $2.68 billion in the same period last year. Most of this revenue came from its merchant solutions, which made $2.7 billion. 

Shopify’s net income also continued growing, reaching $1.5 billion in the second quarter. Excluding its equity investments, its net income jumped to over $1.06 billion. 

Wall Street analysts expect the upcoming earnings report to show that its revenue grew in the third quarter. Precisely, the consensus is that its revenue rose by 31.6% to $3.74 billion, with its earnings-per-share rising to 46 cents. Shopify has a long track record of beating analysts’ estimates. 

Most analysts have a bullish outlook on Shopify shares. Citigroup hiked its target from $196 to $216, while Oppenheimer hiked its target from $175 and $205. RBC also hiked its target to $200, while Stifel hiked to $210. 

Shopify Stock Has Formed a Bullish Pattern

Technicals suggest that the SHOP stock is on the verge of a bullish breakout, which may happen immediately after its earnings or in the coming weeks. It has formed a cup-and-handle pattern whose upper side is at $180 and the lower side is at $94. 

Shopify has also held steady above the 50-day and 200-day Exponential Moving Averages (EMA). It has also remained above the Supertrend indicator.

Therefore, the stock will likely bounce back, potentially to the key resistance level of $180, up by 14.5% from the current level. A move above that level will point to more gains towards $200.

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