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Can Growing Merchant Base Aid Shopify's (SHOP) Q1 Earnings?

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Shopify Inc. (SHOP - Free Report) is scheduled to report first-quarter 2019 results on Apr 30.

Notably, the company has surpassed the Zacks Consensus Estimate for earnings in the trailing four quarters, with an average positive surprise of 150.95%.

In the last reported quarter, Shopify’s earnings and revenues improved on a year-over-year basis and surpassed the corresponding Zacks Consensus Estimate.

What to Expect in Q1

For first-quarter 2019, Shopify projects revenues in the range of $305 million to $310 million. The Zacks Consensus Estimate for revenues is currently pegged at $309.93 million, in line with the higher end of the guided range, representing a surge of almost 44.6% from the year-ago quarter.

Further, the Zacks Consensus Estimate for the bottom line is pegged at a loss of 5 cents, against the year-ago reported earnings of 4 cents.

Let’s see how things are shaping up prior to this announcement.

Favorable ESP

According to the Zacks model, a company with a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) has a good chance of beating estimates if it also has a positive Earnings ESP. Sell-rated stocks (Zacks Rank #4 or 5) are best avoided.

You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Shopify has a Zacks Rank #2 and an Earnings ESP of +7.14%, which raises confidence about a possible earnings surprise.

Shopify Inc. Price and EPS Surprise

Shopify Inc. Price and EPS Surprise | Shopify Inc. Quote

Factors Likely to Influence Q1 Results

Shopify is leaving no stone unturned to meet the requirements of a dynamic retail environment by introducing merchant-friendly applications. Consequently, this is bolstering merchant base, which is expected to drive top-line growth in the to-be-reported quarter.

Growing influence of Shopify’s easy-to-use upgrades and expanding merchant base are likely to boost Gross Merchandise Volume (GMV), thereby aiding the company to perform impressively in the first quarter.

We expect the momentum witnessed by Shopify Plus, Shopify Payments, Shopify Capital and Shopify Shipping to continue in the to-be-reported quarter as well. Further, the growing clout of Shopify Ping is anticipated to be a tailwind in the quarter under review.

Increasing initiatives to enhance footing in the international market deserves a special mention. For instance, the synergies from TicTail buyout and extending local language capabilities on its platform beyond English are expected to aid performance in the first quarter.

Additionally, Shopify has been developing various apps, including varied augmented reality (AR) and virtual reality (VR) based applications, in order to streamline customer experience, which is a positive.We believe that the company will reap benefits from incremental adoption of Dynamic Checkout, Centralized Marketing Dashboard, Fraud Protect and Shopify AR solutions, in the to-be-reported quarter.

Moreover, the availability of Apple Pay, Google Pay and the addition of Canada Post as sales channels are expected to have a significant impact on its top line in the first quarter. Meanwhile, a plethora of sales channels optionsincluding Google Pay, Facebook Messenger, Instagram, Pinterest, eBay and Amazon (AMZN - Free Report) continue to attract new merchants.

However, increasing investments on product development, infrastructure and platform are likely to limit margin expansion in the near term. Introduction of Instagram Checkout and stiff competition from Square (SQ - Free Report) are likely to impact the first-quarter results negatively.

Another Stock to Consider

Here is a stock which you may consider as our model shows that it also has the right combination of elements to post an earnings beat in their upcoming release:

Acacia Communications, Inc. has an Earnings ESP of +5.73% and a Zacks Rank #2. The company is set to report first-quarter 2019 earnings on May 2. You can see the complete list of today’s Zacks #1 Rank stocks here.

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