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Is TikTok Partnership a Win for Shopify Investors?

Canadian e-commerce giant Shopify (SHOP) has witnessed major growth during the COVID-19 pandemic. Restrictions and shutdowns led to an unprecedented boom in the e-commerce sector. 

Shopify has helped various small- and medium-sized businesses transition toward an online or omnichannel model.

Accordingly, the company has been increasing its top line at a rapid rate and is becoming highly profitable. (See SHOP stock charts on TipRanks)

This excellent growth rate has encouraged investors. However, many are wondering whether the company’s growth rate will diminish, or potentially continue, over the long-term. I’m bullish on the stock.

One of the key factors investors are considering in this regard is a recent deal Shopify has made with social media giant TikTok. Let’s take a look at the details.

Shopify Stock Jumps after TikTok Announcement

Shopify and TikTok jointly launched TikTok Shopping on August 24. This new feature will allow certain Shopify merchants to add a shopping tab on their respective TikTok Business profiles.

Merchants can link these profiles to their online stores to let customers browse. Currently, the project is still in its pilot phase, and is available only to U.S and U.K. merchants. However, Shopify is looking to widen this release in the coming months.

Shopify and TikTok are also working on product links. This will allow Shopify merchants to tag their products in various TikTok posts. When a TikTok user clicks on a product in a TikTok video, they will reach the merchant’s online store. 

This partnership will allow Shopify to make a foray into the social commerce industry. The social commerce industry is expected to grow to $50 billion by 2023, from a base of around $36 billion currently.

The stock has risen 2.6% since the August 24 announcement.

Strong Earnings, Fundamentals

With Shopify clearly moving in the right direction with its growth initiatives, let’s take a look at where the company stands today.

From an earnings perspective, things are looking solid for Shopify. The company crossed the $1-billion threshold in quarterly revenue for the first time this past quarter.

Revenue jumped 57% to $1.12 billion. Adjusted net income was $2.24 per diluted share. Shopify’s Merchant Solutions revenue climbed 52% year-over-year, to $785.2 million. Subscriptions Solutions revenue jumped 70%, to $334.2 million.

One of the major highlights of Shopify’s Q2 results was the monthly recurring revenue growth number. Shopify reported growth of 67% in MRR, to $95.1 million. Increased POS Pro subscriptions and merchant additions are responsible for this growth.

Most importantly, net income in Q2 skyrocketed by 2,341.9%, as gross profit grew 66%, to $620.9 million. 

Wall Street’s Take

As per TipRanks’ analyst rating consensus, Shopify stock comes in as Moderate Buy. Out of 26 analyst ratings, 16 are Buy recommendations, and 10 Hold recommendations. The average SHOP price target stands at $1,734.74.

The price targets range from a low of $1,450 per share to a high of $2,000 per share. 

Bottom Line

Apart from TikTok, the e-commerce giant is also partnering with Google (GOOG), Facebook (FB), and Alibaba (BABA). Moreover, Shopify aims to invest heavily in international expansion, and its fulfillment network, over time.

These investments and partnerships are likely to pay dividends for investors (figuratively and literally) over the long-term. Accordingly, Shopify remains a top-notch e-commerce growth play to consider today. 

Disclosure: At the time of publication, Chris MacDonald did not have a position in any of the securities mentioned in this article

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