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Shopify (SHOP) Hits Fresh 52-Week High on Q2 Earnings Beat

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Shares of Shopify Inc. (SHOP - Free Report) gained almost 7% following second-quarter 2020 results on Jul 29. In fact, Shopify stock hit a fresh 52-week high of $1,107.92, eventually closing at $1,053.59. The company 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. Moreover, growth was driven by e-commerce boom and increased buying of essentials in the second quarter on account of the pandemic.

Notably, the company’s stock has skyrocketed 165% in the year-to-date period significantly outperforming the industry’s rally of 14.2%. Currently, Shopify carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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.

Notable Developments

More new merchants signed to Shopify Fulfillment Network in second-quarter 2020 compared with previous quarters since its launch in June 2019. Increasing investments on expanding robotics and fulfillment technology capabilities hold promise.

Further, the company’s strong partner referral system is expected to boost merchant base that will drive the top line in 2020. More than 30,300 partners referred merchants to Shopify in the past 12 months.

Shopify is banking on its new mobile shopping app — Shop, and applications like Shopify Email, Shopify Plus Admin, Shopify Flow and Shopify Balance to boost customer engagement in the days ahead. Notably, Shop app integrates features from both Shop Pay and Arrive  and enables customers to easily discover local businesses, receive relevant product recommendations, check out effortlessly, and track all of their online orders.

Besides the company is well poised to capitalize on e-commerce boom via rapid uptake of its new point of sale software — Shopify POS. The software’s enhanced features are likely to drive its adoption among brick-and-mortal retailers.

Shopify Inc. Price, Consensus and EPS Surprise

Shopify Inc. Price, Consensus and EPS Surprise

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

Moreover, integrating Shopify platform with sales channels from Facebook’s (FB - Free Report) Facebook shops, Walmart’s (WMT - Free Report) and Pinterest (PINS - Free Report) , to enable merchants expand sales, and broaden business avenues, is expected to drive new buyer traffic to their stores. This favors Shopify’s prospects over the longer haul.

Operating Details

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.

Nevertheless, 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 e-commerce 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.

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