Shopify Earnings News: SHOP stock drops on EPS miss

Update: Earnings per share were $0.20 and revenue was $1.2 billion. EPS was miles behind the $0.67 estiamte, revenue was more or less in line. the stock has then fallen sharply on the EPS big miss. SHOP stock is currently down 13% in the premarket on Thursday.

Shopify (SHOP) reports earnings today and the market has priced in another disappointment. That may present the opportunity for a bear-market rally in the stock. We always speak to positioning and sentiment pre-earnings as these are powerful factors in determining the risk-reward. It is not necessarily about being correct in your view but assessing how the stock will react to both positive and negative earnings.

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Take UBER and LYFT. Lyft was first out of the block and earnings were terrible. LYFT stock dropped 30% on Wednesday, UBER shares also fell. When Uber then released earnings and also gave a bearish outlook, UBER stock did not tank. Investors had already expected the worst.

So, in the case of Shopify, the risk is to the upside. Amazon (AMZN) has set the bar low, investors are already nervous about online retailer earnings. SHOP stock is down over 60% this year. Bad earnings will be punished by the market but anything positive or bullish commentary will see an outsized reaction to the upside.

Shopify stock news: SHOP facing steep competition with Amazon

Earnings are to be released before the open on Thursday. Earnings per share are forecast to come in at $0.67 and revenue is expected to reach $1.24 billion. It is not exactly a surprise to see SHOP stock down so much this year. Indeed, SHOP share price has accelerated to the downside this past month, losing over 30%.

Macro factors are at play with growth stocks finally seeing a more realistic valuation. SHOP was after all trading on a huge multiple. Price/sales, Price/book and P/E ratios were all way above the sector. That online retailer segment is not exactly trading on cheap multiples despite Amazon's dominance.

The key problem is that the bigger Shopify gets, then the more likely it is to attract increasingly aggressive tactics from AMZN. It simply cannot compete. Amazon will be able to deploy huge amounts of capital to imitate any perceived improvements in the Shopify experience that retailers find likeable. 

Shopify (SHOP) stock forecast: Bear-market rallies can be powerful

The finally oversold RSI and MFI (it only took a 70% fall to get into oversold!) gave us the initial recovery. Now, Fed's chair Jay Powell has kicked SHOP stock higher again, so can earnings finally give it the final push of what we still feel is a bear-market rally? After all, bear-market rallies can still be powerful.

SHOP stock is trading at a huge discount to its 200-day moving average. $800 is the bearish pivot so SHOP can run while still remaining in a downtrend.

SHOP stock chart, daily