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How Shopify Could Become Profitable by the End of 2017

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Shopify

Image source: Shopify.

Shopify also added more services, such as Shopify Plus, which pairs merchants with a Shopify e-commerce professional to make the sellers' online operations better and to help them move more product. During the most recent quarter, Shopify acquired software design and engineering company Boltmade to help accelerate the development of the Shopify Plus product offering. Those merchant solutions services sales grew 114% year over year in the quarter and now make up nearly half of Shopify's revenue.

Preparing for profitability

Creating so much demand for its service and building out the infrastructure to support so much growth hasn't been cheap for Shopify. While its sales have increased, so have its losses. In the most recent quarter, Shopify's operating costs soared 88% over the prior year, and the company reported a total loss of $0.11 per share.

However, management said in its most recent earnings call that it looks on track to break even by the end of this year. Shopify won't give fiscal 2017 guidance until Q4 and full-year earnings are released in February, but CFO Russ Jones said the following when discussing the company's 2017 investment goals during the Q3 earnings call: "Although these will require investments, some with longer payback periods than other, we continue to feel comfortable with our profitability target for the fourth quarter of 2017."

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Image source: Shopify.

In August, the company completed an additional stock offering, which helped cash to increase from $190 million in December 2015 to $400 million by the end of Q3 2015. The company will be able to use some of this cash to offset its heavier expenses, which could help earnings to rise. Additionally, because it has now completed many of its necessary big investments and because sales are rising, its operating costs as a percentage of revenue could also decrease. Together, these will help Shopify meet its breakeven goal and could lead to earnings growth in the future.

Shopify stock -- why this still looks like a good long-term buy

Just because Shopify may break even by Q4 of this year, that doesn't mean investors should expect some wild growth in earnings, or for the company's price-to-earnings to drop substantially. Shopify is, and will remain, a growth-oriented company that doesn't mind spending most or all of its would-be earnings if it will mean preparing for more exponential growth in the years to come. For long-term-oriented investors who believe in Shopify's ability to continue posting substantial market and sales growth, that doesn't sound like a bad thing.

Having a timeline for breaking even by the end of 2017, with plenty of cash to tide it over until then, and with growing sales and new partnerships that are expanding impressively quarter after quarter -- Shopify continues to look like a great stock to buy and hold for what should be continued growth ahead.

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Seth McNew owns shares of Apple. The Motley Fool owns shares of and recommends Amazon.com, Apple, Facebook, and Shopify. The Motley Fool has the following options: long January 2018 $90 calls on Apple and short January 2018 $95 calls on Apple. The Motley Fool has a disclosure policy .

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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