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Factors Setting the Tone for Shopify (SHOP) in Q4 Earnings

Zacks Equity Research

Shopify Inc. SHOP is set to report fourth-quarter 2018 results on Feb 12.

Notably, the company beat the Zacks Consensus Estimate in the trailing four quarters, delivering average positive surprise of a whopping 195%.

In the last reported quarter, the company delivered adjusted earnings of 4 cents per share against the Zacks Consensus Estimate of a loss of 4 cents. However, the figure was down 20% year over year.

Total revenues surged 58% from the year-ago quarter to $270.1 million, comfortably outpacing the Zacks Consensus Estimate of $257 million.

We believe diversified expanding merchant base will drive top-line growth in the to-be-reported quarter. The company continues to launch a number of merchant-friendly applications to meet the requirements of a dynamic retail environment, in turn bolstering merchant base.


 

Notably, shares of Shopify have gained 40.8% in the past year, against the industry’s decline of 15.5%.

Guidance & Estimates

For fourth-quarter 2018, Shopify projects revenues in the range of $315-$325 million.

The corresponding Zacks Consensus Estimate is currently pegged at $327.13 million, marginally ahead of the higher end of the guided range, representing a surge of almost 46.8% from the year-ago quarter.

Further, the consensus mark for earnings is pegged at 21 cents per share, indicating year-over-year growth of 40%.

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

Factors Likely to Influence Q4 Results

Shopify is leaving no stone unturned to expand business by making its platform as merchant friendly as possible. We believe that the company’s easy-to-use upgrades and expanding merchant base are likely to boost Gross Merchandise Volume (“GMV”), soaring 55% from the year-ago quarter to $10 billion in the last reported quarter. This trend is anticipated to continue, thereby aiding the company to perform impressively.

We expect the momentum witnessed by Shopify Payments, Shopify Plus, Shopify Capital and Shopify Shipping to continue in the to-be-reported quarter as well. Further, the launch of Shopify Ping in the recent past is anticipated to boost top-line growth.

Notably, in the quarter under review, Shopify announced the acquisition of TicTail, a Swedish e-commerce company, per a report by Financial Post. However, the financial terms of the deal have been kept under wraps.

This move is a clear indication of Shopify’s strategy of increasing initiatives to penetrate international markets, which is a positive. We believe the buyout will enable the company to bolster growth prospects and improve competitive position against the likes of Wix WIX, and other peers.

Further, Shopify recently opened its first brick-and-mortar store in Los Angeles, CA. The store is staffed with a panel of experts dubbed as the “Gurus” to guide both the existing and prospective merchants through its robust product and services portfolio.

We believe it is a smart move to time the inauguration with holiday season and is anticipated to aid the company capitalize on the purchasing furor of consumers. Notably, more than 400 Shopify merchants based out of Los Angeles have each individually garnered GMV of more than $1 million. Notably, there are approximately 10,000 Shopify merchants teeming the city.

The company has been developing various apps, including varied augmented reality (“AR”) and virtual reality (“VR”) based applications, in order to streamline customer experience. We believe that the company will reap benefits from investments in latest technological developments.

Shopify’s expanding partner ecosystem is aiding it to identify and reach out to merchants who were otherwise inaccessible. Notably, in the third quarter, more than 16,500 partners had referred merchants to Shopify over the past 12 months.

Moreover, sales channels like Google Pay, Facebook Messenger, Instagram, Pinterest, eBay EBAY and Amazon continue to attract new merchants. 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 to-be-reported quarter.

Nonetheless, increasing investments on product development, infrastructure and platform are likely to limit margin expansion in the near term.

Shopify Inc. Price and EPS Surprise

 

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

What Our Model Says

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.

Shopify has a Zacks Rank #3 and an Earnings ESP of 0.00%. This makes surprise prediction difficult. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Stock that Warrants a Look

Here is a stock you may consider, as our proven model shows that it has the right combination of elements to post an earnings beat this quarter.

Portland General Electric Company POR has an Earnings ESP of +4.19% and a Zacks Rank #1. The company is slated to report fourth-quarter 2018 earnings on Feb 15. You can see the complete list of today’s Zacks #1 Rank stocks here.

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