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After following the broader market lower to end 2018, Shopify (NYSE: SHOP) has come rocketing back this year, with its share price up more than 160% from its December lows. Several factors have contributed to the outsize gains. The company produced better-than-expected first-quarter results, signaling that its growth story remains intact. Last month, it sent investor enthusiasm soaring with a number of important announcements that showed that the company isn't taking its foot off the product-development gas pedal.
Investors will be watching for any signs of weakness when Shopify reports the results of its recently completed second quarter after the market close on Thursday, Aug. 1. Let's review the first-quarter numbers and the company's recent announcements to see if they provide any clues as to what investors can expect when it reports earnings.
Image source: Shopify.
Growth isn't over yet...
One of the factors Shopify shareholders have been watching is the slowing pace of year-over-year revenue growth. For the first quarter, revenue grew to $320.5 million, up 50% year over year, but down from the 68% growth in the prior-year quarter. This not only exceeded analysts' consensus estimates, but came in well above management's forecast, beating both by a cool $10 million.
The bottom line held up as well, as Shopify reported an adjusted operating loss of $1.4 million, far better than the $13 million loss the company was anticipating. Adjusted earnings per share of $0.09 were more than twice the $0.04 generated in the prior-year quarter, and blew away analysts' consensus estimates, which were expecting a loss of $0.05 per share.
An ambitious product rollout
At the Shopify Unite conference last month, the company introduced an aggressive slate of product improvements and additional tools for merchants. Shopify Plus got a makeover, with a more centralized interface when aggregating data from various locations. The company also previewed next-generation point-of-sale software to more easily create customer profiles and locate top products, while also simplifying the task of employee access and login.
Shopify also added 11 new languages in its quest for worldwide domination, while also automatically updating product prices based on current exchange rates for cross-border sales. The company introduced additional tools that let merchants more easily customize their online store -- without having to rewrite the code -- while improving customer engagement features.
The most important revelation, however, was the introduction of the Shopify Fulfillment Network. In the first step of a program that is sure to expand, Shopify is developing a dedicated network of fulfillment centers armed with smart inventory-allocation technology, which will ensure optimal inventory levels at each location. The program will be open to qualifying U.S. merchants and help accelerate product delivery while potentially saving merchants money on delivery costs.
What the quarter could hold
Another bit of good news for investors was that Shopify raised its full-year guidance in the wake of last quarter's better-than-expected performance. The company is now forecasting revenue in a range of $1.48 billion to $1.50 billion, edging higher from its forecast of $1.46 billion to $1.48 billion issued at the end of the fourth quarter. This puts management's guidance squarely in line with analysts' consensus estimates of $1.49 billion for the year.
For the second quarter, Shopify is guiding for revenue in a range of $345 million to $350 million, which would represent year-over-year growth of 42% at the midpoint of its guidance. Investors clearly believe the company is being conservative with that forecast, as analysts' consensus estimates are calling for revenue of $350.46 million and adjusted earnings per share of $0.03.
Considering its history of conservative guidance, Shopify could have another surprise for investors when it reports earnings later this week.
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