Shopify (SHOP) Up 0.4% Since Last Earnings Report: Can It Continue?
A month has gone by since the last earnings report for Shopify (SHOP). Shares have added about 0.4% in that time frame, underperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Shopify due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.
Shopify Q2 Earnings Surpass Estimates, Revenues Up Y/Y
Shopify Inc. reported second-quarter 2020 adjusted earnings of $1.05 per share significantly outpacing the Zacks Consensus Estimate of earnings of 1 cent. The company had reported earnings of 10 cents in the prior-year quarter.
Total revenues improved 97% from the year-ago quarter’s figure to $714.3 million, which beat the Zacks Consensus Estimate by 40.65%.
COVID-19 pandemic has altered consumer spending behavior considerably and induced online store creation. The top line benefited from growth in the number of merchants as more of them joined the Shopify platform due to COVID-19 induced shelter-in-place guidelines.
Quarter in Detail
Subscription Solutions revenues (27.5% of total revenues) surged 28% to $196.4 million driven by persistent growth in Monthly Recurring Revenue (MRR) due to the addition of new merchants. Moreover, strong app growth and Shopify Plus variable platform fee revenue growth were positives.
As of Jun 30, 2020, MRR was $57 million, up 21% from the year-ago quarter. Shopify Plus accounted for $16.6 million, representing 29% of MRR compared with 26% in the quarter ended Jun 30, 2019.
Merchant Solutions revenues (72.5%) advanced 148% to $517.9 million, primarily on growth in Gross Merchandise Volume (GMV) that improved 119% from the year-ago quarter’s figure to $30.1 billion.
Gross Payments Volume (GPV) came in at $13.4 billion, accounting for 45% of GMV processed in the second quarter and up from $5.8 billion (42%) in the prior-year quarter.
Shopify Capital advanced $153 million cash to merchants in the reported quarter, surging 65% compared with $93 million in the year-ago quarter. Since the launch of Shopify Capital, cumulative merchant cash advances have increased to $1.2 billion, out of which $166 million was outstanding as of Jun 30, 2020.
Shopify Shipping witnessed robust adoption in the second quarter. The offering is being leveraged by 49% of total eligible merchants across the United States and Canada, compared with 42% in year-ago quarter. The company rolled out Shopify Shipping in Australia in partnership with Sendle — a courier services company.
Non-GAAP gross profit (adjusted for amortization of acquired intangibles) surged 84% year over year to $381.4 million. This can be attributed to robust performance of Shopify Plus merchants and higher mix of Merchant Solutions revenues. Non-GAAP gross margin contracted 400 basis points (bps) from the year-ago quarter’s level to 53%.
Non-GAAP operating expenses surged 33.3% year over year to $267.7 million. Non-GAAP operating expenses, as a percentage of revenues, contracted to 37% from 56% in the year-ago period.
Shopify reported adjusted operating income of $113.7 million compared with operating income of $6.4 million in the year ago quarter. The increase was driven by robust revenue growth.
Balance Sheet & Cash Flow
As of Jun 30, 2020, Shopify ended the reported quarter with cash, cash equivalents and marketable securities balance of $4 billion compared with $2.36 billion as of Mar 31, 2020. The increase can be attributed to net proceeds worth $1.46 billion from offering of Class A subordinate voting shares in the reported quarter.
Shopify generated net cash flow in operations of $80.2 million for six months ended Jun 30, 2020 compared with $47.4 million for six months ended Jun 30, 2019.
Refrains From Providing Guidance
Management believes that coronavirus crisis led ecommerce boom, and momentum in online retail spending will continue. However, Shopify refrained from providing any guidance for third quarter or 2020 due to COVID-19 induced uncertainties prevailing in the market and plausibility of an extended recession globally.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in estimates revision. The consensus estimate has shifted 71.18% due to these changes.
Currently, Shopify has a great Growth Score of A, a grade with the same score on the momentum front. However, the stock was allocated a grade of F on the value side, putting it in the bottom 20% quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise Shopify has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.
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