Tag: Shopify Inc. (SHOP)

Retail Sales Surge Ahead of the Holidays: Is Amazon the Top Pick for 2024?

Posted on by The INO.com Team

In a significant boost to the retail sector, U.S. retail and food services sales for September 2024 climbed 0.4% month-over-month and 1.7% year-over-year, reaching $714.4 billion​, largely fueled by a 7.1% rise among non-store retailers like Amazon.com, Inc. (AMZN). This growth signals robust consumer confidence as we approach the crucial holiday season, traditionally a peak period for retail. Among the retail titans poised to benefit, Amazon stands out. With its extensive e-commerce footprint and thriving cloud services through Amazon Web Services (AWS), the company is strategically positioned to capitalize on this spending surge.

Amazon's latest financials reflect a resilient and expanding enterprise. The company reported a remarkable 11% year-over-year increase in net sales, totaling $158.9 billion in Q3 2024, driven by gains across all segments. As holiday sales loom large, Amazon's comprehensive strategy and continuous innovation in logistics and cloud computing position it as a potential top pick for investors looking toward 2024.

Amazon's Dual Edge in E-commerce and Cloud

Amazon has long dominated both online retail and cloud computing. The company’s Prime membership model remains a primary growth driver, attracting customers with exclusive deals and benefits like same-day delivery and access to Prime Video. Amazon’s Prime Big Deal Days, held in early October, witnessed record-breaking participation, saving Prime members over $1 billion and signaling robust demand for Amazon’s value-added services as the holidays approach.

AWS segment, which posted a 19% revenue increase to $27.5 billion for Q3, is another crucial pillar. AWS provides Amazon with diversified revenue streams beyond retail and positions it well to capture demand from enterprises looking to leverage cloud and AI technologies. Initiatives within AWS, such as new generative AI-powered features for consumers and enterprise clients, underscore Amazon’s focus on long-term growth in tech infrastructure.

Competitive Retail Landscape: How Amazon Stands Out

Despite Amazon’s apparent strengths, it faces tough competition. Brick-and-mortar retailers like Walmart Inc. (WMT) are actively integrating online strategies to compete with Amazon’s e-commerce dominance. Walmart’s hybrid model of in-store and online shopping has successfully attracted consumers looking for flexibility. Additionally, other e-commerce platforms like Shopify Inc. (SHOP) continue to gain traction by offering businesses user-friendly tools to manage their online sales.

However, Amazon’s expansive logistics network and technology-driven fulfillment capabilities give it a distinctive edge. The company’s investments in same-day delivery, AI-driven shopping assistants, and sustainability efforts (such as eliminating plastic air pillows in packaging) highlight Amazon’s commitment to efficiency and innovation. Amazon also plans to expand its pharmacy services further in 2025, a move that could open new revenue channels and set it apart from traditional retailers.

Amazon’s 2024 Financial Outlook and Potential Risks

Looking forward, Amazon’s Q4 2024 guidance projects net sales between $181.5 billion and $188.5 billion, reflecting expected growth of 7-11% year-over-year. Operating income is forecasted to be between $16 billion and $20 billion, a notable increase from the $13.2 billion reported for Q4 2023. While inflation and economic uncertainties could impact consumer spending, Amazon’s diverse business lines, including AWS, provide it with resilience against market volatility.

Investors should also note Amazon’s robust cash flow position. For the trailing twelve months ending Q3 2024, Amazon reported a 57% year-over-year increase in operating cash flow, reaching $112.7 billion, while free cash flow nearly doubled to $47.7 billion. This strong liquidity supports Amazon’s strategic investments and shields it from financial strain, even amid potential economic headwinds.

Investment Takeaway: Amazon as a Top Pick?

For investors considering a retail stock ahead of the 2024 holiday season, Amazon’s combination of e-commerce dominance, high Prime member engagement, and AWS growth positions it as a compelling choice. While competitive pressures and economic uncertainties remain, Amazon’s focus on logistics innovation and AI integration could drive significant long-term growth. As such, for those looking at stocks with both holiday-driven gains and strong fundamentals, Amazon remains a top pick entering the new year.

Roku’s (ROKU) Prospects Post-Cathie Wood's $13 Million Move: Buy or Wait?

Posted on by The INO.com Team

TV streaming platform Roku, Inc. (ROKU) has been going through a purple patch. According to Nielsen, while viewing hours on traditional TV in the U.S. declined by 13% year-over-year, ROKU’s users streamed 25.1 billion hours in Q2, representing 3.8 Streaming Hours per Active Account per day, up 21% year-over-year.

Consequently, for the fiscal second quarter that ended June 30, ROKU surpassed Street expectations by increasing its revenue by 10.8% year-over-year to $847.2 million and narrowing its loss by 7.3% year-over-year to $0.76 per share.

This outperformance triggered a rally of nearly 10%, which has resulted in the stock surging by more than 45% and 96% over the past six months and year-to-date, respectively.

Beyond the financial performance, on June 27, ROKU announced that it would become the U.S. streaming home of Formula E, the electric vehicle-powered auto racing series, with live and on-demand replays of races. This has made it the company’s first-ever live sports rights package at a time when streaming companies are rushing to secure sports broadcasting rights amid growing industry competition.

The company launched Roku-branded TVs (the first TVs designed and made by Roku) in March to offer consumers even more choices and enable more innovation across the Roku TV program. Best Buy is the exclusive retailer for TV, and all 11 TV models have received strong industry reviews and customer ratings of 4.5 (out of 5) stars or higher.

More recently, on August 3, Miss Universe signed a multi-year broadcasting deal with the channel, and on August 10, WildBrain landed multiple kids’ series.

Moreover, in July, ROKU announced partnerships with FreeWheel and Shopify Inc. (SHOP) to bring a suite of industry solutions to unlock the full value of streaming TV for advertisers and publishers and the ability to purchase products from SHOP merchants directly from their TV through Roku Action Ads for viewers, respectively.

Given the tailwinds, for the fiscal third quarter, ROKU expects total net revenue of roughly $815 million and a total gross profit of roughly $355 million. Moreover, Statista forecasts the number of U.S. households with cable TV packages to be down 40% from a decade earlier.

Hence, it’s unsurprising to find analysts expecting ROKU’s revenue to increase by 7.6% year-over-year to $3.36 billion in 2023 and by another 15.3% to $3.88 billion in 2024.

However, anticlimactically, Cathie Wood, the founder, CEO, and CIO of Ark Invest, an investment management firm whose flagship fund, ARK Innovation ETF (ARKK), sold shares of ROKU worth $13.1 million.

ARKK, which seeks to generate long-term capital appreciation by investing in businesses across the globe that seek to benefit from disruptive innovation, alone sold 138,221 shares of ROKU. Despite the sale, the AMC still owns 8,697,614 shares of the streaming company, valued at around $770 million, and the holding is weighted at 9.3% of ARKK's portfolio.

Nevertheless, the $13 million move, albeit amounting to a little above 1% of ARK’s stake in ROKU, has raised eyebrows. However, the move makes sense in the context of valuation.

In terms of the forward EV/Sales multiple, ROKU is trading at 3.11, which is 66.4% above the industry average of 1.87. Similarly, the stock’s forward Price/Sales and Price/Book multiples of 3.43 and 4.93 are significantly higher than the respective industry averages of 1.22 and 1.99.

Such a frothy valuation seems unsustainable for a company that’s yet to turn in a profit and is operating in a competitive and overcrowded sector that has of late found the going tough due to an attention recession to the reopening of the economy after the pandemic, softened demand due to a year-long ordeal with inflation, muted TV advertising, and, of all things, strikes among Hollywood actors and writers.

Hence, while the stock is still trading above its 50-day and 200-day moving averages of $71.84 and $60.05, respectively, it is not difficult to see how the tide might have already begun turning. Moreover, with a 5-year beta of 1.76, volatility also remains an issue.

Bottom Line

In view of the above, it could be wise for investors to hold their horses and wait for ROKU to become profitable or for its valuation to become more attractive before acquiring a stake in the streaming giant, aspiring to go full steam ahead.

Shopify (SHOP) Unveils HOT AI Chatbot: Is it a 'Must' Buy?

Posted on by The INO.com Team

On July 12, Canada-based e-commerce company Shopify Inc. (SHOP) unveiled its artificial intelligence (AI) assistant designed to help merchants with questions, thereby becoming the latest in the string of companies to implement such a feature.

The assistant, Sidekick, would be embedded as a button on the platform that can complete tasks for merchants and answer specific questions about their business, including queries on sales and order trends within a store. Illustrating the features through a video on Twitter, SHOP CEO said that the AI feature is “coming soon.”

Since the announcement, SHOP’s stock has gained about 6.9%, compared to a 2.9% rise during the month prior, at par with the S&P 500. However, is the feature worth the hype? Let’s find out.

AI is an umbrella term that is used to denote a series of programs and algorithms designed to mimic human intelligence and perform cognitive tasks efficiently with little to no human intervention.
However, unlike other next-big things, AI has been around for quite some time, influencing how we shop, drive, date, entertain ourselves, manage our finances, take care of our health, and much more.

However, the technology came into the limelight late last year with the release of ChatGPT, which in its own description, is “an AI-powered chatbot developed by OpenAI, based on the GPT (Generative Pretrained Transformer) language model. It uses deep learning techniques to generate human-like responses to text inputs in a conversational manner.”

The easily accessible chatbot that took the world by storm is one of the several use cases of generative AI, the subset of algorithms that creates and returns content, such as human-like text, images, and videos, based on the user's written instructions (prompts).

Including this subset, AI in its various forms and applications can analyze large volumes of data generated during the entire course of our increasingly digital existence and identify trends and exceptions to help us develop better insights and make more effective decisions.

Given its massive importance, it’s hardly surprising that Zion Market Research forecasts the global AI industry to grow to $422.37 billion by 2028. Hence, this field has understandably garnered massive attention from investors who are reluctant to miss the bus on such a watershed development in the history of humankind.

The Catch

Notwithstanding all the transformative qualities of AI, investors in SHOP would be wise to be aware of the caveats before FOMO drives them to buy like there’s no tomorrow and inflate a "baby bubble" growing in plain sight.

Microsoft Corporation (MSFT) has bet big on the technology by announcing a multiyear, multibillion-dollar investment deal with Open AI. MSFT’s rival, Alphabet Inc. (GOOGL), is in hot pursuit. With ubiquitous AI-enabled technology across its platforms, the company has unveiled its response to ChatGPT, called BardAI.

Chinese tech giant Baidu, Inc. (BIDU) has also followed suit with Ernie Bot. Amazon.com, Inc. (AMZN) and Meta Platforms, Inc. (META) are also among the notable players in this dynamic domain. Alibaba Group Holding Limited (BABA), Zoom Video Communications, Inc. (ZM), and Databricks have all crowded this space with their own offerings.

Hence, while the technology is powerful (and useful, unlike most cryptocurrencies), the adoption is fast becoming so widespread that it remains unclear how it could help a specific business differentiate itself by developing enduring competitive advantages (read moats) and generating consistent profitability.

While AI is really good (and continually getting better) at predicting based on available data, it lacks contextual understanding. Since, in the words of Morgan Housel, 'things that have never happened before happen all the time,' it could be challenging for any AI tool to deal with tails, exceptions, and outliers in the shifting sands of business, economy, and society.

Even AAPL co-founder Steve Wozniak, who knows more than a thing or two about technology, agrees with the ‘A’ and not the ‘I’ of Artificial Intelligence.

Stick to Basics

Just as we have learned during the dot-com, cryptocurrency, real estate, and numerous other bubbles through the ages, markets can stay irrational longer than investors can stay solvent.

Therefore, even if the next big thing comes along and changes the world (and electricity, automobiles, personal computers, and the Internet really did), it is fundamentals that determine whether a business can survive to capitalize on those windfalls.

With inflation and rising interest rates expected to keep weighing on consumer spending, SHOP’s core activities in a softening market have been facing unrelenting pressure from competition on both livestream shopping and logistics fronts.

However, in a strategic U-turn, SHOP sold its logistics unit, which it had spent years building out, including last-mile delivery startup Deliverr, its largest acquisition ever, to supply chain technology company Flexport. Moreover, on May 4, SHOP announced that it would be laying off 20% of its workforce in addition to the 10% it let go last July.

Bottomline

Rather than getting too carried away and stretching an improvisation that keeps the business at par with the competition to frothy excesses with unrealistic expectations, it would be wise for investors to evaluate SHOP based on its fundamentals and prospects.