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What's in Store for Shopify (SHOP) This Earnings Season?

Shopify Inc. SHOP is scheduled to report third-quarter 2020 results on Oct 29.

The company has not provided third-quarter guidance citing COVID-19-induced uncertainties prevalent in the market.

The Zacks Consensus Estimate for revenues is currently pegged at $656.1 million, which suggests growth of 68% from the year-ago quarter’s reported figure.

The Zacks Consensus Estimate for the bottom line has been steady over the past seven days at 49 cents. The company had reported adjusted net loss of 29 cents per share in the third quarter of 2019.

Shopify Inc. Price and EPS Surprise

 

Shopify Inc. Price and EPS Surprise

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

Notably, the company’s earnings have surpassed the Zacks Consensus Estimate each of the last four quarters. It has a trailing four-quarter earnings surprise of 2,667.68%, on average.

Factors Likely to Have Influenced Q3

Continued momentum in e-commerce owing to COVID-19 crisis is expected to have driven Shopify’s third-quarter performance.

Shopify Plus platform is expected to have witnessed strong traction in the third quarter as enterprise merchants continue to shift their businesses online as retail landscape is changing radically. Addition of Shopify Plus Admin, a back-end solution that enables merchants to manage their entire operations from single point is likely to have bolstered adoption of Shopify Plus.

Besides, adoption of “multi-currency feature” aimed at enabling merchants to sell products in several currencies and receive payments in their respective local currency is likely to have driven Shopify Plus revenues in the quarter to be reported.

The company’s latest express theme feature (at no additional cost) is also likely to have witnessed incremental adoption in the third quarter which in turn might have added more merchants (especially cafes and restaurants) to Shopify’s platform and resulted in increased Gross Merchandise Volume (GMV). Express theme allows merchants to quickly set up online business platforms.

Furthermore, the company’s mobile app Shop is expected to have witnessed uptake among merchant base. Shop app is a digital online assistant that helps customers quickly navigate checkout and keep a tab on shipment details. By making it simpler for customers to shop online, this app helps merchants increase their sales numbers.

Also, the company is anticipated to have gained from Shopify Email tool. Shopify Email is a marketing feature that assists merchants to boost email marketing campaigns with campaign analytics, templates, and brand asset importing functionalities.

Shopify’s Fulfillment Network is expected to have aided the company to cater to more merchants in the third quarter, which might have generated additional volumes. Increasing investments on expanding robotics and fulfillment technology capabilities hold promise.

Moreover, strong adoption of Shopify’s easy-to-use upgrades and merchant-friendly applications is anticipated to have augmented adoption of Shopify Capital, Shopify Payments, and Shopify Shipping solutions in the third quarter, which might get reflected in the quarter’s performance.

The company’s Shopify Balance and Shopify Pay Installments’ solutions are expected to have added new merchants to the platform. Also, the company’s collaborations with Walmart, Facebook and Pinterest are expected to have fueled growth in the merchant base.

Increase in number of merchants on the platform is likely to have strengthened GMV and Monthly Recurring Revenue (MRR) metrics and hence, revenues from Merchant Solutions and Subscription Solutions, respectively.

Notably, the Zacks Consensus Estimate for third-quarter revenues from Merchant Solutions stands at $441 million, representing an increase of 96% on a year-over-year basis. The consensus estimate for Subscription Solutions’ third-quarter revenues is pegged at $216 million, indicating a rally of 30.1% on a year-over-year basis.

Markedly, an expanding merchant base has been instilling confidence in the stock. Shares of Shopify have surged 158.1% year to date, compared with the industry’s rise of 26.3%.

The company is also anticipated to have gained from the launch of new point of sale (POS) system to help integrate online and in-person sales in a bid to aid merchants in staying well-informed of changing commerce practices in the wake of challenging retail backdrop.

Moreover, Shopify is likely to have gained from introduction of contactless payment hardware for Canadian retailers using new POS system, Shopify POS. This includes the Shopify Tap & Chip Card Reader, Shopify Tap & Chip Case and Shopify Retail Kit.

Likewise, Shopify has been working on improving curb side pickup facilities and local deliveries to meet the spurt in digital shopping. This is anticipated to have positively impacted Shopify’s performance in the to-be-reported quarter.

Notably, the company has been working on extending language capabilities beyond English. The focus on local languages might have helped the company in shoring up international operations. These endeavors to reinforce presence in the international market may have contributed to the third-quarter performance.

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

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 +23.02% and a Zacks Rank #3. 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 that also have the right combination of elements to post an earnings beat this quarter:
    
Avnet AVT has an Earnings ESP of +39.13% and it currently sports a Zacks Rank of 1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Fortinet FTNT has an Earnings ESP of +1.89% and it presently flaunts a Zacks Rank of 2.

Activision Blizzard ATVI currently has an Earnings ESP of +3.29% and a Zacks Rank of 2.

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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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