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Shopify (SHOP) to Report Q1 Earnings: Is a Beat in the Cards?

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Shopify Inc. (SHOP - Free Report) is scheduled to report first-quarter 2020 results on May 6.

On Apr 1, Shopify provided an update on impact of COVID-19 on its business. Despite the economic crisis triggered by coronavirus pandemic, the company anticipates reporting first-quarter revenues within or ahead of the guided range provided on Feb 12, 2020, driven by momentum witnessed in January and February.

For first-quarter 2020, Shopify had guided revenues in the range of $440-$446 million.

The Zacks Consensus Estimate for revenues is currently pegged at $443.7 million, suggesting growth of 38.4% from the year-ago quarter.

The consensus for earnings is pegged at loss of 18 cents per share, which narrowed from a loss of 19 cents in the past 30 days. The company had reported earnings of 9 cents in the prior-year quarter.

Shopify Inc. Price and EPS Surprise

Shopify Inc. Price and EPS Surprise

Shopify Inc. price-eps-surprise | Shopify Inc. Quote

Notably, the company has surpassed the Zacks Consensus Estimate for earnings in the trailing four quarters. It has a trailing four-quarter positive earnings surprise of 187.95%, on average.

What the Zacks Model Unveils

Our proven model predicts an earnings beat for Shopify this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat.

Shopify has an Earnings ESP of +23.41% and a Zacks Rank #2. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Factors to Note

Strong online sales triggered by the coronavirus outbreak are expected to have driven Shopify’s first-quarter performance. Moreover, the company introduced Shopify Capital in the U.K., with an aim to aid eligible merchants with cash advances amid the coronavirus-induced crisis.

The company is also anticipated to have gained from introduction of Shopify Email — a new email marketing tool to aid merchants in enhancing email marketing campaigns with templates, campaign analytics and brand asset importing functionalities.

Incremental adoption of the new service is likely to have aided merchants in expanding business with engaging experience, which might get reflected in the first-quarter performance.

Further, robust adoption of Shopify’s easy-to-use upgrades and new merchant-friendly applications is anticipated to have bolstered adoption of Shopify Payments, Shopify Capital and Shopify Shipping solutions in the first quarter. This, in turn, is expected to get reflected in the to-be-reported quarter’s results.

An expanding merchant base is likely to have bolstered Gross Merchandise Volume (GMV) and Monthly Recurring Revenue (MRR) metrics and hence, revenues from Merchant Solutions and Subscription Solutions, respectively.

Notably, the Zacks Consensus Estimate for revenues from MRR and GMV currently stands at $57 million and $16.83 billion, respectively. Notably, in the prior-year quarter, MRR and GMV were reported revenues of $44.2 million and $11.9 billion, respectively.

Moreover, the Zacks Consensus Estimate for revenues from Merchant Solutions currently stands at $260 million, indicating year-over-year growth of 44.4%.

Markedly, an expanding merchant base has been instilling confidence in the stock. Shares of Shopify have returned 54.3% year to date, against the industry’s decline of 1.2%.

Additionally, the consensus mark for revenues from Subscription Solutions currently stands at $184 million, suggesting an improvement of 31% from the prior-year quarter.

Besides, adoption of “multi-currency feature” aimed at enabling merchants to sell products in several currencies and receive payments in their respective local currency is expected to have driven Shopify Plus revenues in the quarter to be reported.

Notably, Shopify has been working on extending language capabilities beyond English. The focus on local languages might have helped the company in bolstering international presence. These initiatives to strengthen presence in the international market are likely to have contributed to the first-quarter performance.

However, Shopify’s increasing investments on product development, fulfillment network, infrastructure and international expansion to maintain competitive position in the e-commerce market are likely to have limited profitability in the first quarter.

Notable Development in Q1

In the first-quarter, Shopify announced that it is joining Facebook’s (FB - Free Report) ambitious crypto-currency venture, Libra. The company is becoming a member of the Libra Association, in a bid to co-develop a payment network that makes money transfer easy to support both merchants and consumers and facilitates commerce.

Other Stocks that Warrant a Look

Here are a couple of other companies, which also have the right combination of elements to post an earnings beat this quarter:

Inphi Corporation (IPHI - Free Report) has an Earnings ESP of +20.04% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Etsy (ETSY - Free Report) has an Earnings ESP of +18.31% and a Zacks Rank #2.

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