Will Expanding Merchant Base Aid Shopify's (SHOP) Q2 Earnings?

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

Momentum in online sales triggered by the coronavirus pandemic is expected to have driven Shopify’s second-quarter performance.

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

However, stiff competition from Amazon AMZN, eBay, Square, Facebook’s FB Instagram Checkout, among others, may have weighed on the to-be-reported quarter’s performance. The company’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 limited profitability in the second quarter.

Click here to know how the company’s overall Q2 performance is expected to be.

Initiatives Likely to Have Bolstered Merchant Base

Solid momentum in Shopify’s easy-to-use upgrades and new merchant-friendly applications is anticipated to have aided Shopify expand merchant base. This may have bolstered adoption of Shopify Payments, Shopify Capital and Shopify Shipping solutions, which in turn is expected to get reflected in the second-quarter results.

Moreover, the company 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.

Markedly, an expanding merchant base has been instilling confidence in the stock. Shares of Shopify have skyrocketed 133.9% year to date, outperforming the industry’s rally of 14.5%. The company currently carries a Zacks Rank #2 (Buy).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Additionally, partnership with CoinPayments and Walmart WMT might have opened newer business avenues for the company in the second quarter. During the quarter under review, Shopify collaborated with Walmart (WMT) in a bid to enable merchants to sell products on 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.

The company also announced partnership with CoinPayments to bring the latter’s crypto payments processing platform to all its merchants and boost adoption of digital currency payments.

Key Metrics

An expanding merchant base is likely to have bolstered Gross Merchandise Volume (GMV) and Monthly Recurring Revenue (MRR) metrics and hence, revenues from Merchant Solutions and Subscription Solutions, respectively.

Notably, the Zacks Consensus Estimate for revenues from MRR and GMV currently stands at $57 million and $19.8 billion, respectively. Notably, in the prior-year quarter, MRR and GMV reported revenues of $47.1 million and $13.8 billion, respectively.

Shopify Inc. Revenue (Quarterly)

Shopify Inc. Revenue (Quarterly)

Shopify Inc. revenue-quarterly | Shopify Inc. Quote

Moreover, the Zacks Consensus Estimate for Merchant Solutions’ revenues currently stands at $310 million, indicating year-over-year growth of 48.4%.

Additionally, the consensus mark for Subscription Solutions’ revenues is currently pegged at $192 million, suggesting an improvement of 25.5% from the prior-year quarter.

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