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Factors Setting the Tone for Shopify's (SHOP) Q4 Earnings

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Shopify Inc. (SHOP - Free Report) is slated to report fourth-quarter 2020 results on Feb 17.

The company refrained from providing any guidance for the fourth quarter or 2020 due to COVID-19 induced uncertainties prevailing in the market pertaining to unemployment, fiscal stimulus, and the magnitude and duration of adverse business impacts, which might have affected new shop creation on Shopify platform.

Nevertheless, management believes that momentum in online retail spending owing to coronavirus crisis led e-commerce boom is likely to have continued in the fourth quarter.

The Zacks Consensus Estimate for revenues is currently pegged at $906.82 million, suggesting growth of 79.5% from the year-ago quarter.

Markedly, on Dec 1, Shopify announced that brands on its platform witnessed sales of $5.1 billion over Black Friday/Cyber Monday 2020 weekend, indicating year-over-year improvement of 76%. Strong holiday sales are expected to have driven Shopify’s fourth-quarter performance.

The Zacks Consensus Estimate for earnings is pegged at $1.21 per share, which was revised downward by 3 cents in the past 30 days. The company had reported earnings of 43 cents in the prior-year quarter.

Shopify Inc. Price and EPS Surprise

Shopify Inc. Price and EPS Surprise

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

Notably, the company has surpassed the Zacks Consensus Estimate for earnings in each of the trailing four quarters, the average surprise being a whopping 2,704.63%.

Factors Likely to Have Influenced Q4 Results

Momentum in online sales triggered by the coronavirus pandemic and strong holiday season is expected to have driven Shopify’s fourth-quarter performance.

The company is anticipated to have gained from solid uptick in contactless payment hardware for 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, traction in latest Shop — a shopping assistant app — with an aim to aid merchants enhance customer experience and sales on the platform might have bolstered sales.

Furthermore, growing clout of the company’s latest POS system to help integrate online and in-person sales in a bid to aid merchants to stay abreast of evolving commerce practices in the wake of evolving 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 the fourth-quarter performance and helped the company expand merchant base.

Besides, 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 fourth 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 this Zacks Rank #1 (Strong Buy) stock. Shares of Shopify have soared 174.6% in the past year, significantly outperforming the industry’s rally of 38.5%. You can see the complete list of today’s Zacks #1 Rank stocks here.

Also, 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 fourth-quarter results.

Particularly, net new merchants are expected to have improved via Shopify’s partnerships with Facebook and Walmart (WMT - Free Report) .

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 fourth-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 against players like BigCommerce Holdings, Inc. (BIGC - Free Report) , are likely to have weighed on the fourth-quarter profitability.

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