Markets

Is a Beat in Store for Shopify (SHOP) This Earnings Season?

Shopify Inc. SHOP is slated to report second-quarter 2020 results on Jul 29.

The company refrained from providing second-quarter guidance citing COVID-19 induced uncertainties prevailing in the market.

The Zacks Consensus Estimate for revenues is currently pegged at $502.97 million, suggesting growth of 38.95% from the year-ago quarter.

The Zacks Consensus Estimate for bottom line is pegged at break-even, which narrowed from a loss of one cent in the past seven days. The company reported earnings of 14 cents in the prior-year quarter.

Notably, the company has surpassed the Zacks Consensus Estimate for earnings in each of the trailing four quarters, the average surprise being 169.34%.

Factors to Note

Momentum in online sales triggered by the coronavirus pandemic is expected to have driven Shopify’s second-quarter performance. Moreover, the company launched Shop — a shopping assistant app — with an aim to aid merchants enhance customer experience and sales on the platform.
 

Shopify Inc. Price and EPS Surprise

Shopify Inc. Price and EPS Surprise

Shopify Inc. price-eps-surprise | Shopify Inc. Quote

The company is also anticipated to have gained from introduction of contactless payment hardware for Canadian retailers using new point of sale (POS) system, Shopify POS. This includes the Shopify Tap & Chip Card Reader, Shopify Tap & Chip Case and Shopify Retail Kit.

Moreover, launch of new POS system to help integrate online and in-person sales in a bid to aid merchants in staying abreast of evolving commerce practices in the wake of tough retail environment is noteworthy.

Incremental adoption of these aforementioned new services is likely to have aided merchants in expanding business with engaging experience. This is expected to have contributed to top-line growth in the second-quarter performance and helped the company expand merchant base.

Further, robust adoption of Shopify’s easy-to-use upgrades and new merchant-friendly applications is anticipated to have bolstered adoption of Shopify Payments, Shopify Capital and Shopify Shipping solutions in the second quarter. This, in turn, may get reflected in the to-be-reported quarter’s results.



Markedly, an expanding merchant base has been instilling confidence in the stock. Shares of Shopify have surged 127% year to date, outperforming the industry’s rally of 15.2%.

Besides, roll out of new solutions like Shopify Balance and Shop Pay Installments, which are aimed at enabling merchants to offer seamless payment options to customers, is expected to get reflected in the second-quarter results.

Particularly, Shopify’s partnership with CoinPayments to bring the latter’s crypto payments processing platform to all its merchants and boost adoption of digital currency payments, deserves a special mention.

Notably, Shopify has been working on extending language capabilities beyond English. The focus on local languages might have helped the company in strengthening international foothold. These initiatives to reinforce presence in the international market may have contributed to the second-quarter performance.

However, Shopify’s increasing investments on product development, fulfillment network, infrastructure and international expansion to maintain competitive position in the e-commerce market are likely to have weighed on the second-quarter profitability.

Strategic Partnerships in Q2

During the second quarter, Shopify partnered with Chipotle to launch the Chipotle Virtual Farmers' Market. Markedly, Shopify’s platform will be utilized by farmers in the Chipotle supply chain to deliver enhanced versions of their e-commerce portals.

Moreover, the company collaborated with Walmart WMT in a bid to enable merchants to sell products on Walmart.com. The move is a testament to the company’s increasing efforts to bolster merchant base, pertaining to small and medium-sized businesses, with multiple channel options. (Read More)

The company also announced partnership with Facebook to help businesses create Facebook Shops — a new and free tool that aids merchants create customized online storefront for Facebook and Instagram.

What the Zacks Model Unveils

Our proven model predicts an earnings beat for Shopify this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat.

Shopify has an Earnings ESP of +3,482.30% and a Zacks Rank #2. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Other Stocks that Warrant a Look

Here are some other companies, which also have the right combination of elements to post an earnings beat this quarter:

Synaptics Incorporated SYNA has an Earnings ESP of +10.60% and a Zacks Rank of 1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Microchip Technology Incorporated MCHP has an Earnings ESP of +3.09% and a Zacks Rank of 1.

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