A month has gone by since the last earnings report for Shopify Inc. (SHOP - Free Report) . Shares have added about 12.2% in that time frame.
Will the recent positive trend continue leading up to its next earnings release, or is SHOP 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 delivered first-quarter 2018 non-GAAP earnings of 4 cents per share much better than year-ago quarter’s loss of 4 cents. Moreover, earnings beat the Zacks Consensus Estimate by 9 cents.
Revenues surged 68.3% from the year-ago quarter to $214.3 million, comfortably surpassing the Zacks Consensus Estimate of $201.6 million. The figure was also better than the guided range of $198-$202 million.
Shopify continues to launch a number of merchant-friendly applications to meet the requirements of a dynamic retail environment, consequently adding to its merchant base. Top-line growth benefited from an expanding merchant base.
Subscription Solutions revenues surged 61.4% to $100.2 million driven by the persistent solid growth in Monthly Recurring Revenue (“MRR”) with the addition of several new merchants.
As of Mar 31, 2018, MRR was $32.5 million, up 57% from the year-ago quarter figure of $20.7 million. Shopify Plus accounted for $7 million representing 22% of MRR compared with 17% in the quarter ended Mar 31, 2017.
Merchant Solutions revenues soared 75% to $114.1 million, driven primarily by growth in Gross Merchandise Volume (“GMV”), which soared 64% from the year-ago quarter to $8.0 billion. Growth was also evident from robust performance of Shopify Shipping and Shopify Capital, revenues of each growing more than 50% on a year-over-year basis.
Gross Payments Volume (“GPV”) came in at $3 billion, accounting for 38% of GMV processed in the first quarter up from $1.8 billion (38%) in the prior-year quarter.
Notably, Shopify’s Instagram channel and integration of Google Pay (introduced in March this year) and Apple Pay services have helped the company connect to a wide customer base, ultimately increasing the number of active users on the platform. To make transactions easier for its merchants, Shopify is continuously focusing on the development of mobile applications.
Shopping on Instagram was expanded to France, the U.K., Canada, Australia, Germany, Italy, Brazil and Spain in March, 2018.
Purchases from merchants’ stores from mobile devices witnessed 75% of traffic and garnered 64% of orders for the quarter ended Mar 31, 2018, up from 69% and 59%, respectively, reported in the year-ago quarter.
Additionally, Smile With Lay’s shop, was introduced in Shopify Plus during the quarter which enables customers to personalize a bag of Lay’s potato chips by featuring their face on it. Marrine, new shops of PepsiCo and Nestle were also added.
Management was particularly positive about the company’s partner ecosystem that helps it to identify and reach out to merchants otherwise inaccessible. Around 16,000 partners referred merchants to Shopify in the past 12 months.
Non-GAAP gross profit soared 71.4% to $124.3 million. Non-GAAP gross margin consequently expanded by 110 basis points (bps), primarily driven by revenue growth in partner referral fee. Robust performance of Shipping and Capital favored margins.
Moreover, the risk posed by strained Subscription Solutions margins due to transition to cloud was offset by margin growth.
Adjusted operating loss was $0.2 million compared with loss of $4.3 million in the year-ago quarter.
Shopify ended the quarter with cash, cash equivalents and marketable securities balance of $1.58 billion up from $938 million in the previous quarter, primarily owing to proceeds from company’s offering of 4.8 million (Class A subordinate voting) shares in February.
For second-quarter 2018, Shopify projects revenues in the range of $230-$235 million.
Adjusted operating loss is expected to be in the range of $5-$7 million.
For full-year 2018, Shopify raised outlook. Management now projects revenues in the range of $1-$1.01 billion, better than the previous guided range of $970-$990 million.
Adjusted operating income for fiscal 2018 is now guided in the range of $0-$5 million, compared with the previous band of ($5)-$5 million.
With a view to make the platform more merchant friendly, Shopify is working on extending language capabilities beyond English. We believe this inclusive move will boost engagement and consequently increase adoption going forward. Further, shopping on Instagram was expanded to 35 countries in April.
Shopify has been developing various apps, including various augmented reality (“AR”) based applications to streamline customer experience, The first-of-its-kind merchant product on the Shopify platform has been built on Shopify Mobile Buy SDK and Apple 's ARKit, enabling users to check how the goods look in real life surroundings.
Moreover, investments in latest technological developments such as Virtual Reality and Augmented Reality will reap benefits for the company going forward.
How Have Estimates Been Moving Since Then?
It turns out, fresh estimates have trended downward during the past month. There have been four revisions higher for the current quarter compared to five lower.
At this time, SHOP has a poor Growth Score of F, a grade with the same score on the momentum front. The stock was also allocated a grade of F on the value side, putting it in the bottom 20% 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.
Our style scores indicate investors will probably be better served looking elsewhere.
Estimates have been trending downward for the stock and the magnitude of these revisions indicates a downward shift. Notably, SHOP has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.