Why Is Shopify (SHOP) Stock Soaring Today

What Happened?

Shares of e-commerce software platform Shopify (NYSE:SHOP) jumped 19.8% in the afternoon session after the company reported stronger-than-expected second-quarter financial results, which blew past Wall Street's expectations for key operating metrics, including sales, operating income, and earnings. The e-commerce company announced revenues of $2.68 billion, which grew 31% year-over-year. This growth was fueled by a 16% increase in Gross Merchandise Volume (GMV), the total value of all sales processed by merchants on the platform. For the next quarter, management projected continued revenue growth in the mid-to-high twenties, which signaled sustained momentum to the market. Overall, this was an impressive quarter.

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What Is The Market Telling Us

Shopify’s shares are very volatile and have had 26 moves greater than 5% over the last year. But moves this big are rare even for Shopify and indicate this news significantly impacted the market’s perception of the business.

The previous big move we wrote about was 2 days ago when the stock gained 5.5% on the news that the Software as a Service (SaaS) sector rebounded following the sell-off in the previous trading session as a weaker-than-expected U.S. jobs report increased the probability of a Federal Reserve interest rate cut. The July Nonfarm Payrolls (NFP) report showed the U.S. economy added only 73,000 jobs, significantly below the 110,000 forecast. This, combined with downward revisions for May and June, signaled a cooling labor market to investors. In response, market expectations for a September interest rate cut by the Federal Reserve surged from roughly 40% to over 80%. A potential rate cut is generally favorable for growth sectors like technology and SaaS, as lower rates can increase the present value of their future earnings, boosting stock valuations.

Shopify is up 41.4% since the beginning of the year, and at $152.08 per share, has set a new 52-week high. Investors who bought $1,000 worth of Shopify’s shares 5 years ago would now be looking at an investment worth $1,397.

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