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Amazon, Shopify, PayPal Earnings Suggest Continued Growth in eCommerce

·6 min read

Online retailers have not been popular investments since the worst of the pandemic, as physical retail has come back strongly with more people moving outdoors. Inflation is a top concern right now, and retail in general is not looking so good as a result.

But despite these negatives, earnings reports from one established and another relatively new online retailer show that not all companies are the same. While pandemic-style strength in demand is absent, the companies continue to grow, supporting the theory that some of the shift online has been permanent.

Amazon.com Inc. AMZN reported an earnings miss of 33.3% in the last quarter that came from sales that beat the Zacks Consensus Estimate by 1.3%.

The Zacks Rank #3 (Hold-rated) stock’s revenue growth remains extremely strong, with the growth rate up 40% above the rate during the pandemic-influenced May 2020-May 2021 and the compound annual growth rate (CAGR) since the pandemic +25%.

In the last quarter, product revenue missed analyst estimates by 3.2% while services revenue beat by 4.0%.

By segment, both North America and AWS beat analyst estimates by a respective 6.0% and 1.6%. International was the disappointment, missing by 8.8%.

Physical stores beat by 4.7% while online sales fell 2.8% short. Other metrics were also a mixed bag: Third party seller services revenue was ahead of estimates (by 6.4%) as was advertising services revenue (by 1.4%) and other (by 90.8%, off a smaller base). But subscription services revenue missed by 1.2%.

Segment-wise operating income shows that North America and International losses came in 67.7% and 7.4% lower than expected. However, AWS profit was also 4.2% below estimates. The lower-than expected losses came from improvement in the fulfilment network that offset some of the cost pressures at worldwide stores, inflationary pressures (particularly in energy electricity rates) and fixed cost deleverage. Worldwide shipping costs were also 3.2% lower than expected.

Amazon continues to leverage the Prime subscription to generate sales growth.

In the September quarter, analysts on average expect the North America, International and AWS segments to grow 13.2%, 8.7% and 29.6%, respectively. While online sales are expected to grow 10.6%, the much smaller contribution from physical stores is expected to grow 8.5%. Total product sales growth is expected to be 11.6% and services sales growth 20.1%. Subscription services are expected to grow 16.2%.

Zacks #3 ranked Shopify Inc. SHOP, a provider of essential internet infrastructure for commerce, missed earnings estimates by 40.0% in the June quarter (loss of 14 cents versus earnings of 15 cents a year ago) on sales that also missed by around 3.0%.

Sales did grow 15.7%, however.

“While commerce through offline channels grew faster in Q2, where our exposure is lower but growing, we continued to see increased adoption of our solutions, enabling our merchants to remain agile against a challenging macro environment and highlighting the breadth and resilience of our business model,” said Amy Shapero, Shopify’s CFO.

As a result, Subscription Solutions (28% revenue share) grew 10% to beat analyst estimates by 0.3% while Merchant Solutions (the balance) grew 18% to miss analyst estimates by 5%. Therefore, Merchant solutions was clearly responsible for the revenue miss, although it grew more than Subscriptions.

Gross Merchandise Volume (GMV) grew 11% from the year-ago quarter and at a three-year CAGR of 50%, but missed analyst estimates by 4.7%.

Gross Payments Volume (GPV) grew to 53% of GMV in the quarter from 48% a year ago. GPV, which increased 31% over the past year, also disappointed, missing analyst estimates by 1.4%.

The monthly recurring revenue (MRR) missed by 2.6%. Shopify Plus (31% of MRR) continued to grow, beating analyst estimates by 2.5%.

For the September quarter, analysts are looking for a 14.3% year-over-year increase in Subscription revenues and a 33.0% increase in Merchant revenues. GMV is expected to increase 23.5% and GPV 29.8%. MRR is expected to increase 16.3% and Shopify Plus contribution 3.0%.

PayPal Holdings, Inc. PYPL reported June quarter earnings that beat the Zacks Consensus Estimate by 20.4% on revenue that beat by less than a percentage point.

The reason for the lackluster topline can be traced to the its transaction revenues, which fell 0.9% short of analyst estimates despite growing 8.2% from the year-ago quarter for a 92% share of total revenue. Revenues from other value-added services grew 21.1% to beat by 9.3%.

U.S. revenues (57% of total revenue) grew 18.1%, topping analyst estimates by 0.9%. International revenues declined 0.8% to miss estimates by 0.6%.

Therefore, the revenue miss was on account of lower-than-expected transactions in International.

Total payment volume, although up 9.3% from last year missed analyst estimates by 1.5%. TPV was below expectations in both U.S. (by 0.9%) and International (by 1.2%). The total take rate was more or less in line with estimates as was the transactions take rate. The transaction expense rate and loan loss rate were also in line with expectations. And the transaction margin was only slightly off (by 0.05%).

Active customer accounts increased 6.5%, missing analyst estimates by 0.9%. The number of payment transactions grew 16.4%, but was just short of estimates (by 0.07%). Payment transactions per active account grew 12.8% and were more or less in line with estimates. Read together, this suggests that business was quite strong during the quarter.

For the September quarter, analysts expect transaction revenue to increase 14.6% year over year with revenue from other services expected to decline 2.0%. U.S. revenue is expected to increase 12.1% and International 12.6%.

TPV is expected to increase 15.0% with U.S. TPV increasing 20.7% and International 6.6%. The transaction take rate is expected to be flat at 1.81. However, both the transaction expense rate and the loan loss rate are expected to increase to 0.88 and 0.13, respectively. So, the transaction margin is expected to decline 10.5%.

Active customer accounts will increase 5.2%, the number of transactions will increase 16.8% and the number of transactions per active account 13.9%.

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