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Why Is Shopify (SHOP) Down 19.3% Since Last Earnings Report?
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It has been about a month since the last earnings report for Shopify (SHOP - Free Report) . Shares have lost about 19.3% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Shopify due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.
Shopify Q4 Earnings & Revenues Surpass Estimates, Up Y/Y
Shopify Inc. reported fourth-quarter 2020 adjusted earnings of $1.58 per share significantly outpacing the Zacks Consensus Estimate by 30.58%. The company had reported adjusted earnings of 43 cents per share in the prior-year quarter.
Total revenues improved 94% from the year-ago quarter’s figure to $977.7 million, which beat the Zacks Consensus Estimate by 7.8%.
COVID-19 pandemic has altered consumer spending behavior considerably and triggered 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 fourth quarter on account of the pandemic.
Markedly, on Dec 1, Shopify announced that brands on its platform witnessed sales of $5.1 billion, indicating year-over-year improvement of 76% over Black Friday/Cyber Monday 2020 weekend. Also, on Nov 28, the company declared that independent and direct-to-consumer brands on its platform achieved $2.4 billion worth of worldwide sales on Black Friday, indicating year-over-year growth of 75%. Strong holiday sales have driven Shopify’s fourth-quarter performance.
Quarter in Detail
Subscription Solutions revenues surged 53% to $279.4 million driven by persistent growth in Monthly Recurring Revenue (MRR) due to the addition of new merchants. Moreover, strong app growth and conversion from free trial to paid members were positives. Incremental revenues from new Retail POS Pro subscription offering, with subscription pricing coming into effect in November 2020, contributed to growth.
As of Dec 31, 2020, MRR was $82.6 million, up 53% from the year-ago quarter. Shopify Plus accounted for $21 million, representing 25% of MRR compared with 27% in the quarter ended Dec 31, 2019. This was driven by significant increase in number of merchants, who joined the platform in 2020 on standard plans.
Management noted that although demand remains higher for subscriptions compared to pre-COVID-19 levels, the company does not anticipate growth rate in 2021 to match that of the 2020 levels.
Merchant Solutions revenues advanced 117%, to $698.3 million, primarily on growth in Gross Merchandise Volume (GMV) that improved 99% from the year-ago quarter’s figure to $41.1 billion.
Gross Payments Volume (GPV) was $19.1 billion, accounting for 46% of GMV processed in the fourth quarter and up from $8.9 billion (43%) in the prior-year quarter.
Shopify Capital advanced $226.9 million cash (and loans) to merchants in the reported quarter, advancing 96% compared with $115.9 million in the year-ago quarter. Since the launch of Shopify Capital, cumulative merchant cash advances have increased to $1.7 billion, out of which $244.7 million was outstanding as of Dec 31, 2020.
Shopify Shipping witnessed robust adoption in the fourth quarter. The offering is being leveraged by 52% of total eligible merchants across the United States and Canada, compared with 45% in year-ago quarter.
Blockbuster 2020 & Key Business Highlights
More new merchants signed to Shopify Fulfillment Network in fourth-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 anticipated to boost merchant base that will drive the top line in 2021. More than 42,200 partners referred merchants to Shopify in the past 12 months, up 72% over 24,500 for the 12 months period ended Dec 31, 2019.
Shopify is banking on its new mobile shopping app — Shop, and applications like Shopify Email, Shopify Plus Admin, Shop Pay Installments, Shopify Flow and Shopify Balance to bolster 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.
Notably, the company introduced Shopify Payments in Belgium, facilitating iDEAL as a local payment method, and support Bancontact debit payments. This marked the availability of Shopify Payments in 17 countries.
The company also rolled out the Offset app to enable merchants to opt-in to offset the carbon emissions pertaining to shipments of all their deliveries.
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 enhanced features of Retail POS and POS Pro are likely to drive its adoption among brick-and-mortal retailers.
Moreover, integrating Shopify platform with sales channels from Facebook’s Facebook shops, Walmart’s Walmart.com and Pinterest; and TikTok marketing channel, 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.
The company also facilitated Alibaba’s Alipay as a payment method, in a bid to enable merchants in the United States to effortlessly accept payments through Alipay which boasts of more than one billion annual active users in China alone.
In the recent past, Shopify expanded its accelerated checkout, Shop Pay, to Facebook and Instagram. This will enable Shopify Payments to process transactions by Shopify merchants on Facebook and Instagram as the integration gets fully implemented later this year.
Notably, this marks the first time that Shop Pay has advanced beyond Shopify, providing buyers on Facebook and Instagram with a hassle-free and secure way to checkout and ensure carbon emission offsets on every delivery. Shop Pay is now available as a payment option within Facebook to Shopify merchants using checkout on Instagram in the United States and will be rolling out to Shopify merchants using checkout on Facebook in the country in the coming weeks.
Shopify noted that it ended 2020 with Shop having more than 100 million registered users, which included buyers that opted in to Shop Pay and other app users. The company commenced 2021 with more than 19 million Monthly Active Users. Also, Shop Pay facilitated nearly $20 billion, by the end of 2020, in cumulative GMV since its launch in 2017.
Operating Details
Non-GAAP gross profit (adjusted for amortization of acquired intangibles) soared 89.2% year over year to $510.6 million. This can be attributed to higher mix of Merchant Solutions revenues.
Nevertheless, non-GAAP gross margin contracted 100 basis points (bps) from the year-ago quarter’s level to 52%.
Non-GAAP operating expenses surged 28.7% year over year to $310.6 million.
Non-GAAP operating expenses, as a percentage of revenues, contracted to 32% from 48% in the year-ago period.
Shopify reported adjusted operating income of $200 million compared with operating income of $28.5 million in the year-ago quarter. As a percentage of revenues, the figure expanded to 20% from 6% in the year-ago period. The increase was driven by robust revenue growth and contracting expenses.
Balance Sheet & Cash Flow
As of Dec 31, 2020, Shopify ended the reported quarter with cash, cash equivalents and marketable securities balance of $6.39 billion compared with $6.12 billion as of Sep 30, 2020.
Shopify generated net cash flow in operations of almost $425 million for 12 months-period ended Dec 31, 2020 compared with $70.6 million for 12 months-period ended Dec 31, 2019.
Guidance
Although the company expects to gain from ongoing growth trends, it refrained from providing any formal guidance for 2021, which can be attributed to COVID-19 induced uncertainties prevailing in the market pertaining to unemployment, fiscal stimulus, and the magnitude and duration of adverse business impacts.
Management believes that coronavirus crisis led e-commerce boom, and momentum in online retail spending in 2020 will likely normalize in 2021 as vaccine roll outs will enable population to move freely, encouraging offline retail sales.
In a bid to acquire more Plus and POS merchants both in North America and internationally on increased global demand, the company intends to expand sales and marketing efforts and improve product marketing to help merchants leverage the comprehensive range of capabilities on the Shopify platform.
For 2021, the company expects Subscriptions solutions revenue growth to be driven by more merchants joining the platform, the tally for which is anticipated to be lower than the figure in 2020 but higher when compared with any year prior to 2020.
Also, management does not anticipate the magnitude of surge in GMV, which helped merchant solutions to grow in 2020, to recur in 2021.
Continued GMV growth driven by existing merchant base, new merchants and expanded adoption of Shopify’s growing portfolio of merchant solutions is anticipated to boost Merchant solutions revenue growth.
Momentum in Shopify Payments, Shopify Shipping, and Shopify Capital, and growing clout of newer solutions such as Shopify Fulfillment Network and 6 River Systems are expected to contribute to revenue growth.
The company expects revenue to grow rapidly in 2021 although at a lower rate compared with 2020.
How Have Estimates Been Moving Since Then?
It turns out, estimates revision have trended upward during the past month. The consensus estimate has shifted 383.1% due to these changes.
VGM Scores
Currently, Shopify has a great Growth Score of A, though it is lagging a lot on the Momentum Score front with an F. Following the exact same course, the stock was allocated a grade of F on the value side, putting it in the lowest quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Shopify has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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Why Is Shopify (SHOP) Down 19.3% Since Last Earnings Report?
It has been about a month since the last earnings report for Shopify (SHOP - Free Report) . Shares have lost about 19.3% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Shopify due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.
Shopify Q4 Earnings & Revenues Surpass Estimates, Up Y/Y
Shopify Inc. reported fourth-quarter 2020 adjusted earnings of $1.58 per share significantly outpacing the Zacks Consensus Estimate by 30.58%. The company had reported adjusted earnings of 43 cents per share in the prior-year quarter.
Total revenues improved 94% from the year-ago quarter’s figure to $977.7 million, which beat the Zacks Consensus Estimate by 7.8%.
COVID-19 pandemic has altered consumer spending behavior considerably and triggered 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 fourth quarter on account of the pandemic.
Markedly, on Dec 1, Shopify announced that brands on its platform witnessed sales of $5.1 billion, indicating year-over-year improvement of 76% over Black Friday/Cyber Monday 2020 weekend. Also, on Nov 28, the company declared that independent and direct-to-consumer brands on its platform achieved $2.4 billion worth of worldwide sales on Black Friday, indicating year-over-year growth of 75%. Strong holiday sales have driven Shopify’s fourth-quarter performance.
Quarter in Detail
Subscription Solutions revenues surged 53% to $279.4 million driven by persistent growth in Monthly Recurring Revenue (MRR) due to the addition of new merchants. Moreover, strong app growth and conversion from free trial to paid members were positives. Incremental revenues from new Retail POS Pro subscription offering, with subscription pricing coming into effect in November 2020, contributed to growth.
As of Dec 31, 2020, MRR was $82.6 million, up 53% from the year-ago quarter. Shopify Plus accounted for $21 million, representing 25% of MRR compared with 27% in the quarter ended Dec 31, 2019. This was driven by significant increase in number of merchants, who joined the platform in 2020 on standard plans.
Management noted that although demand remains higher for subscriptions compared to pre-COVID-19 levels, the company does not anticipate growth rate in 2021 to match that of the 2020 levels.
Merchant Solutions revenues advanced 117%, to $698.3 million, primarily on growth in Gross Merchandise Volume (GMV) that improved 99% from the year-ago quarter’s figure to $41.1 billion.
Gross Payments Volume (GPV) was $19.1 billion, accounting for 46% of GMV processed in the fourth quarter and up from $8.9 billion (43%) in the prior-year quarter.
Shopify Capital advanced $226.9 million cash (and loans) to merchants in the reported quarter, advancing 96% compared with $115.9 million in the year-ago quarter. Since the launch of Shopify Capital, cumulative merchant cash advances have increased to $1.7 billion, out of which $244.7 million was outstanding as of Dec 31, 2020.
Shopify Shipping witnessed robust adoption in the fourth quarter. The offering is being leveraged by 52% of total eligible merchants across the United States and Canada, compared with 45% in year-ago quarter.
Blockbuster 2020 & Key Business Highlights
More new merchants signed to Shopify Fulfillment Network in fourth-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 anticipated to boost merchant base that will drive the top line in 2021. More than 42,200 partners referred merchants to Shopify in the past 12 months, up 72% over 24,500 for the 12 months period ended Dec 31, 2019.
Shopify is banking on its new mobile shopping app — Shop, and applications like Shopify Email, Shopify Plus Admin, Shop Pay Installments, Shopify Flow and Shopify Balance to bolster 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.
Notably, the company introduced Shopify Payments in Belgium, facilitating iDEAL as a local payment method, and support Bancontact debit payments. This marked the availability of Shopify Payments in 17 countries.
The company also rolled out the Offset app to enable merchants to opt-in to offset the carbon emissions pertaining to shipments of all their deliveries.
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 enhanced features of Retail POS and POS Pro are likely to drive its adoption among brick-and-mortal retailers.
Moreover, integrating Shopify platform with sales channels from Facebook’s Facebook shops, Walmart’s Walmart.com and Pinterest; and TikTok marketing channel, 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.
The company also facilitated Alibaba’s Alipay as a payment method, in a bid to enable merchants in the United States to effortlessly accept payments through Alipay which boasts of more than one billion annual active users in China alone.
In the recent past, Shopify expanded its accelerated checkout, Shop Pay, to Facebook and Instagram. This will enable Shopify Payments to process transactions by Shopify merchants on Facebook and Instagram as the integration gets fully implemented later this year.
Notably, this marks the first time that Shop Pay has advanced beyond Shopify, providing buyers on Facebook and Instagram with a hassle-free and secure way to checkout and ensure carbon emission offsets on every delivery. Shop Pay is now available as a payment option within Facebook to Shopify merchants using checkout on Instagram in the United States and will be rolling out to Shopify merchants using checkout on Facebook in the country in the coming weeks.
Shopify noted that it ended 2020 with Shop having more than 100 million registered users, which included buyers that opted in to Shop Pay and other app users. The company commenced 2021 with more than 19 million Monthly Active Users. Also, Shop Pay facilitated nearly $20 billion, by the end of 2020, in cumulative GMV since its launch in 2017.
Operating Details
Non-GAAP gross profit (adjusted for amortization of acquired intangibles) soared 89.2% year over year to $510.6 million. This can be attributed to higher mix of Merchant Solutions revenues.
Nevertheless, non-GAAP gross margin contracted 100 basis points (bps) from the year-ago quarter’s level to 52%.
Non-GAAP operating expenses surged 28.7% year over year to $310.6 million.
Non-GAAP operating expenses, as a percentage of revenues, contracted to 32% from 48% in the year-ago period.
Shopify reported adjusted operating income of $200 million compared with operating income of $28.5 million in the year-ago quarter. As a percentage of revenues, the figure expanded to 20% from 6% in the year-ago period. The increase was driven by robust revenue growth and contracting expenses.
Balance Sheet & Cash Flow
As of Dec 31, 2020, Shopify ended the reported quarter with cash, cash equivalents and marketable securities balance of $6.39 billion compared with $6.12 billion as of Sep 30, 2020.
Shopify generated net cash flow in operations of almost $425 million for 12 months-period ended Dec 31, 2020 compared with $70.6 million for 12 months-period ended Dec 31, 2019.
Guidance
Although the company expects to gain from ongoing growth trends, it refrained from providing any formal guidance for 2021, which can be attributed to COVID-19 induced uncertainties prevailing in the market pertaining to unemployment, fiscal stimulus, and the magnitude and duration of adverse business impacts.
Management believes that coronavirus crisis led e-commerce boom, and momentum in online retail spending in 2020 will likely normalize in 2021 as vaccine roll outs will enable population to move freely, encouraging offline retail sales.
In a bid to acquire more Plus and POS merchants both in North America and internationally on increased global demand, the company intends to expand sales and marketing efforts and improve product marketing to help merchants leverage the comprehensive range of capabilities on the Shopify platform.
For 2021, the company expects Subscriptions solutions revenue growth to be driven by more merchants joining the platform, the tally for which is anticipated to be lower than the figure in 2020 but higher when compared with any year prior to 2020.
Also, management does not anticipate the magnitude of surge in GMV, which helped merchant solutions to grow in 2020, to recur in 2021.
Continued GMV growth driven by existing merchant base, new merchants and expanded adoption of Shopify’s growing portfolio of merchant solutions is anticipated to boost Merchant solutions revenue growth.
Momentum in Shopify Payments, Shopify Shipping, and Shopify Capital, and growing clout of newer solutions such as Shopify Fulfillment Network and 6 River Systems are expected to contribute to revenue growth.
The company expects revenue to grow rapidly in 2021 although at a lower rate compared with 2020.
How Have Estimates Been Moving Since Then?
It turns out, estimates revision have trended upward during the past month. The consensus estimate has shifted 383.1% due to these changes.
VGM Scores
Currently, Shopify has a great Growth Score of A, though it is lagging a lot on the Momentum Score front with an F. Following the exact same course, the stock was allocated a grade of F on the value side, putting it in the lowest quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Shopify has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.