A month has gone by since the last earnings report for Shopify (SHOP - Free Report) . Shares have added about 6.5% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Shopify 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 drivers.
Shopify delivered second-quarter 2018 adjusted earnings of 2 cents per share, surpassing the Zacks Consensus Estimate by 4 cents. The figure also compared favorably with the year-ago quarter’s loss of 1 cent.
Total revenues surged 61.5% from the year-ago quarter to $244.96 million, comfortably outpacing the Zacks Consensus Estimate of $235 million. The figure also fared better than the guided range of $230-$235 million.
Top-line growth benefited from a diversified expanding merchant base.The company continues to launch a number of merchant-friendly applications to meet the requirements of a dynamic retail environment, consequently bolstering its merchant base.
Subscription Solutions revenues (45.2% of total revenues) surged 54.6% to $110.72 million driven by the persistent solid growth in Monthly Recurring Revenue (“MRR”) aided by the addition of several new merchants.
As of Jun 30, 2018, MRR was $35.3 million, up 49% from the year-ago quarter figure of $23.7 million. Shopify Plus accounted for $8.1 million representing 23% of MRR compared with 18% in the quarter ended Jun 30, 2017.
Merchant Solutions revenues (54.8%) advanced 67.7% to $134.2 million, primarily driven by growth in GMV which soared 56% from the year-ago quarter to $9.1 billion.
Robust performance of Shopify Shipping and Shopify Capital also aided growth. Markedly, revenues of both Shopify Shipping and Shopify Capital have recorded year-over-year growth which “more than doubled”.
However, it is to be noted that GMV growth is declining. In the first quarter, GMV registered a year-over-year increase of 64%, for instance.
Shopify Capital advanced $68.5 million cash to merchants in the quarter, registering growth 84% compared with $37.2 million in the year-ago quarter. Notably, since the launch of Shopify Capital, cumulative merchant cash advances have grown to almost $300 million, out of which $80 million was outstanding as on Jun 30, 2018.
Shopify Shipping witnessed robust adoption in the quarter. The offering is being leveraged by more than a third of total eligible merchants across the United States and Canada.
Gross Payments Volume (“GPV”) came in at $3.6 billion, accounting for 40% of GMV processed in the second quarter, up from $2.2 billion (38%) in the prior-year quarter.
Purchases from merchants’ stores from mobile devices witnessed 76% of traffic and garnered 66% of orders for the quarter ended Jun 30, 2018, up from 72% and 60%, respectively, reported in the year-ago quarter.
Management remains positive about the company’s expanding partner ecosystem that aids it to identify and reach out to merchants who are otherwise inaccessible. The total number of apps registered in the App store amount to 2,500. Greater than 16,000 partners referred merchants to Shopify in the past 12 months.
Non-GAAP gross profit climbed 57.9% to $137.6 million primarily on the back of robust performance of Shipping and Capital.
Non-GAAP gross margin contracted 130 basis points (bps) to 56.2%. The margins were impacted by the risk posed by strained Subscription Solutions margins due to transition to cloud.
Non-GAAP General and Administrative ("G&A") expenses surged 67.2% year over year to $21.5 million. Non-GAAP Research and development "(R&D") expenses advanced 58.6% to $39.1 million. Non-GAAP Sales and Marketing (“S&M”) expenses rose 54.4% to $81.2 million.
Non-GAAP G&A expenses as a percentage of revenues expanded 30 bps to 8.8%. Non-GAAP R&D expenses as a percentage of revenues contracted 30 bps to almost 16%. Non-GAAP S&M expenses as a percentage of revenues contracted 150 bps to 33.2%.
Shopify reported a wider adjusted operating loss of $4.3 million compared with the year-ago quarter’s loss of $2.9 million.
Balance Sheet & Cash Flow
Shopify ended the reported quarter with cash, cash equivalents and marketable securities balance of $1.57 billion compared with $1.58 billion recorded at the end of the first quarter.
Shopify used net cash from operations of $2.8 million for the six months period ended Jun 30, 2018, compared with $4.9 million used in the year-ago period. The negative cash flow can be primarily attributed to robust growth in merchant cash advances.
Developments in the Quarter
At Unite, Shopify’s annual conference, the company unveiled various enhancements and unveiled new technologies aimed at improving selling experience of merchants.
In a bid to make transactions easier for its merchants, Shopify is continuously focusing on the development of mobile applications. In this regard, the company released a free mobile app for Apple’s iOS devices. It has been made accessible to Shopify merchants in the App Store. The latest offering called Shopify Ping will be of extreme convenience to customers as the demand for mobile internet continues to rise.
The launch of Shopify Ping has made it easier for merchants to process payments, ship products along with securing financing through messaging for their working capital needs. Moreover, the new Shopify Ping will be compatible with Facebook and Instagram ads helping merchants connect to a wide customer base, consequently increasing the number of active users on the platform.
In the quarter, the company introduced Shopify Payments in Japan. Consequently, the total countries where the solution is launched now accounts to eight.
For third-quarter 2018, Shopify projects revenues in the range of $253-$257 million (mid-point at $255 million).
Adjusted operating loss is anticipated to be in the range of $9-$11 million.
For full-year 2018, Shopify raised outlook. Management now projects revenues in the range of $1.015-$1.025 billion (mid-point at $1.02 billion) better than the previous guided range of $1-$1.01 billion.
However, management reiterated the guidance for adjusted operating income for fiscal 2018 between break even and $5 million.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -24.49% due to these changes.
Currently, Shopify has a poor Growth Score of F, however its Momentum Score 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 bottom 20% 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 style scores.
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Interestingly, Shopify has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.