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Shopify (SHOP) Q1 Earnings Surpass Estimates, Shares Up

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Shares of Shopify Inc. (SHOP - Free Report) gained 6.9% following first-quarter 2020 results on May 6. The company reported first-quarter 2020 adjusted earnings of 19 cents per share against the Zacks Consensus Estimate of a loss of 18 cents. Moreover, the figure surged 216.7% on a year-over-year basis.

Total revenues increased 47% from the year-ago quarter’s figure to $470 million, which beat the Zacks Consensus Estimate by 5.9%.

The top line benefited from growth in the number of merchants as more of them joined the Shopify platform due to COVID-19 induced lockdowns. Moreover, growth was driven by increased buying of essentials in the first quarter due to the pandemic.

Notably, the company’s stock has returned 84.5% in the year-to-date period compared with the industry’s rise of 1.4%.

Shopify Inc Price, Consensus and EPS Surprise

 

 

Quarter in Detail

Subscription Solutions revenues (39.9% of total revenues) surged 34% to $187.6 million driven by persistent growth in Monthly Recurring Revenue (MRR) due to the addition of new merchants. Moreover, strong app growth and Shopify Plus variable platform fee revenue growth were positives.

As of Mar 31, MRR was $55.4 million, up 35% from the year-ago quarter’s tally. Shopify Plus accounted for $15.3 million, representing 29% of MRR compared with 26% in the quarter ended Mar 31, 2019.

Merchant Solutions revenues (60.1%) advanced 57% to $282.4 million, primarily on growth in Gross Merchandise Volume (GMV) that improved 46% from the year-ago quarter’s figure to $17.4 billion.

Shopify Capital advanced $162.4 million cash to merchants in the reported quarter, surging 85% compared with $87.8 million in the year-ago quarter. Since the launch of Shopify Capital, cumulative merchant cash advances have increased to $1.05 billion, out of which $192 million was outstanding as of Mar 31.

Shopify Shipping witnessed robust adoption in the fourth quarter. The offering is being leveraged by 46% of total eligible merchants across the United States and Canada.

Gross Payments Volume (GPV) came in at $7.3 billion, accounting for 42% of GMV processed in the first quarter and up from $4.9 billion (41%) in the prior-year quarter.

Notable Developments

More new merchants signed in to Shopify Fulfillment Network in the first quarter of 2020 compared with previous quarters since its launch in June 2019. Moreover, Shopify opened a R&D Centre in Ottawa, Canada to test new robotics and fulfillment technologies as well as fulfill Canada-based orders in the first quarter.

Further, the company’s strong partner referral system is expected to boost merchant base that will drive the top line in 2020. More than 26,400 partners referred merchants to Shopify in the past 12 months.

The company also joined the Libra Association, which is currently collaborating to build a simple, inclusive and global cryptocurrency, proposed by social media giant — Facebook.

Operating Details

Non-GAAP gross profit (adjusted for amortization of acquired intangibles) surged 44% year over year to $263.8 million. This can be attributed to robust performance of Shopify Plus merchants as well as efficiencies in hosting costs and better payment margins.

Non-GAAP gross margin contracted 100 basis points (bps) from the year-ago quarter’s level to 56%.

Non-GAAP operating expenses surged 48.6% year over year to $271.1 million.

Non-GAAP operating expenses, as a percentage of revenues, expanded 100 bps year over year to 58%.

Shopify reported adjusted operating loss of $7.3 million against operating profit of $300K in the year ago quarter. The deterioration was caused by higher operating expenses pertaining to the acquisition of 6 River Systems, more brand spend and an increase in the allowance for potential losses related to Shopify Payments and Capital to account for the impact of COVID-19.

Balance Sheet & Cash Flow

As of Mar 31, 2020, Shopify ended the reported quarter with cash, cash equivalents and marketable securities balance of $2.360 billion compared with $2.455 billion as of Dec 31, 2019.

Net cash used in operations was $85 million in the reported quarter compared with cash flow of $70.6 million in the prior quarter.

Refrains From Providing Guidance

Shopify reaffirmed the suspension of its guidance for 2020. On Apr 1, the company had suspended its guidance for the year due to COVID-19 induced uncertainties prevailing in the market. Citing the same, the company refrained from providing second-quarter guidance as well.

Conclusion

Shopify is banking on its new mobile shopping app — Shop — to boost customer engagement in the days ahead. Notably, the app integrates features from both Shop Pay and Arrive as well enable customers to easily discover local businesses, receive relevant product recommendations, check out effortlessly, and track all of their online orders.

Markedly, Shop Pay has processed more than $8 billion in sales, while Arrive has been used by 16 million shoppers to track their ecommerce orders.

Shopify also rolled out its new point of sale software, Shopify POS. The software’s enhanced features are likely to drive its adoption among brick-and-mortal retailers.

Recently, the company launched Shopify Payments in Austria, expanding the availability of the service to 16 countries. The service’s growing international presence bodes well for Shopify’s growth prospects over the long haul.

Zacks Rank & Stocks to Consider

Currently, Shopify carries a Zacks Rank #3 (Hold).

Cogent Communications Holdings, Inc. (CCOI - Free Report) , NeoPhotonics Corporation (NPTN - Free Report) and InterDigital, Inc. (IDCC - Free Report) are some better-ranked stocks worth considering in the broader computer and technology sector, each flaunting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Long-term earnings growth rate for NeoPhotonics and InterDigital is pegged at 15% each, while the same for Cogent is pegged at 11.46%.

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