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Shopify (SHOP) Up 6.5% Since Earnings Report: Can It Continue?

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About a month has gone by since the last earnings report for Shopify Inc. (SHOP - Free Report) . Shares have added about 6.5% in that time frame, outperforming the market.

Will the recent positive trend continue leading up to the stock's next earnings release, or is it due for a pullback? 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 catalysts.

Shopify Q2 Loss Narrower than Expected, Revenues Beat

Shopify reported loss of  $0.01 per share in second-quarter 2017, which was narrower than the Zacks Consensus Estimate of a loss of $0.07 per share as well as the loss of $0.04 per share incurred in the year-ago quarter.

Revenues increased 75% from the year-ago quarter to $151.7 million, comfortably surpassing the Zacks Consensus Estimate of $143 million. The figure was also better than management’s guided range of $142–$144 million.

Shopify also raised its 2017 top-line projection and also provided a narrower operating loss guidance range.

We note that Shopify’s merchant base continues to expand and recently surpassed 0.5 million. The company continues to add sales channels (Buzzfeed, Wish are now live) to its platform and launch new features, which have been key growth drivers.

Shopify recently announced that it is adding eBay as a channel, which will enhance its brand value and provide significant exposure in the long run. Management expects the eBay channel to be available to U.S. merchants later this year.

Quarter Details

Subscription Solutions revenues grew 63.9% to $71.6 million. This increase was driven by the continued rapid growth in Monthly Recurring Revenue (MRR).

As of Jun 30, 2017, MRR was $23.7 million, up 64% from $14.4 million as of Jun 30, 2016. Shopify Plus accounted for 4.3 million or 18% of this MRR compared with 13% of MRR in the year-ago quarter.

Merchant Solutions revenues grew 86% to $80.1 million, backed primarily by the growth of Gross Merchandise Volume (GMV), which soared 74% from the year-ago quarter to $5.8 billion. Gross Payments Volume (GPV) grew to $2.2 billion, which accounted for 38% of GMV processed in the quarter, compared with $1.3 billion, or 38%, in second-quarter 2016.

Adoption of merchant solutions continued to grow in the second quarter. Shopify stated that more than 25% merchants shipping from the U.S. and nearly 20% of those shipping from Canada used Shopify Shipping during the quarter. Moreover, total cumulative amount of cash advanced by Shopify Capital reached $86 million as of Jun 30.

Shopify stated that more than 13,000 partners have referred merchants to the platform in the last 12 months, which increased from 12,000 reported in the last quarter. The company added more than 50 Shopify Plus technology partners.

Visa, Frito-Lay, Jones New York, BuzzFeed, Elvis Presley, Canadian Tire and The New York Times are  some companies that launched stores on Shopify in the reported quarter.

Operating Details

Adjusted gross margin expanded 200 basis points (bps) from the year-ago quarter to 57%. The expansion was primarily driven by robust performance across Subscription Solutions and Merchant Solutions segments. Merchant Solutions also benefited from the expansion of the higher margin Shipping business and increasing Capital offerings.

Adjusted operating loss was $2.9 million, narrower than loss of $3.2 million reported in the year-ago quarter. The figure was also narrower than management’s expectation of an adjusted operating loss of $6–$8 million.

Balance Sheet

Shopify ended the quarter with cash, cash equivalents and marketable securities balance of $932.4 million, compared with $395.7 million as of Mar 31 2017. The massive improvement reflects the addition of $560 million net proceeds from Shopify's successful offering of additional shares in the second quarter.

Guidance

For third-quarter 2017, Shopify projects revenues in the range of $164–$166 million. Adjusted operating loss is expected to be in the range of $2–$4 million.

For full-year 2017, management projects revenues in the range of $642–$648 million (up from $615–$630 million).

The adjusted operating loss guidance was narrowed to $7–$11 million from a range of $14–$18 million.

How Have Estimates Been Moving Since Then?

Following the release, investors have witnessed an upward trend in fresh estimates. There have been three revisions higher for the current quarter.

Shopify Inc. Price and Consensus

 

Shopify Inc. Price and Consensus | Shopify Inc. Quote

VGM Scores

At this time, the stock has a poor Growth Score of F, however its Momentum is doing a lot better with a C. However, 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 F. If you aren't focused on one strategy, this score is the one you should be interested in.

The company's stock is suitable solely for momentum based on our styles scores.

Outlook

Estimates have been trending upward for the stock. The magnitude of these revisions also looks promising. Notably, the stock has a Zacks Rank #3 (Hold). We are expecting an inline return from the stock in the next few months.




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