In this article, I will take a look at Shopify Inc’s (NYSE:SHOP) most recent earnings update (31 December 2017) and compare these latest figures against its performance over the past few years, along with how the rest of SHOP’s industry performed. As a long-term investor, I find it useful to analyze the company’s trend over time in order to estimate whether or not the company is able to meet its goals, and eventually grow sustainably over time. View our latest analysis for Shopify
Was SHOP’s recent earnings decline indicative of a tough track record?
For the most up-to-date info, I use data from the most recent 12 months, which annualizes the latest 6-month earnings release, or some times, the latest annual report is already the most recent financial data. This method enables me to examine various companies on a more comparable basis, using new information. For Shopify, its latest trailing-twelve-month earnings is -US$39.99M, which, in comparison to the previous year’s level, has become more negative. Since these values are relatively myopic, I’ve determined an annualized five-year value for Shopify’s net income, which stands at -US$26.20M. This doesn’t look much better, since earnings seem to have steadily been getting more and more negative over time.
We can further evaluate Shopify’s loss by looking at what the industry has been experiencing over the past few years. Each year, for the last five years Shopify’s top-line has grown by 46.14% on average, signalling that the company is in a high-growth phase with expenses racing ahead revenues, leading to annual losses. Eyeballing growth from a sector-level, the US internet industry has been growing its average earnings by double-digit 14.78% over the prior twelve months, and 16.95% over the previous five years. This suggests that whatever tailwind the industry is deriving benefit from, Shopify has not been able to leverage it as much as its average peer.
What does this mean?
While past data is useful, it doesn’t tell the whole story. With companies that are currently loss-making, it is always difficult to forecast what will occur going forward, and when. The most insightful step is to examine company-specific issues Shopify may be facing and whether management guidance has dependably been met in the past. I suggest you continue to research Shopify to get a better picture of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for SHOP’s future growth? Take a look at our free research report of analyst consensus for SHOP’s outlook.
- Financial Health: Is SHOP’s operations financially sustainable? Balance sheets can be hard to analyze, which is why we’ve done it for you. Check out our financial health checks here.
- Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.
NB: Figures in this article are calculated using data from the trailing twelve months from 31 December 2017. This may not be consistent with full year annual report figures.
To help readers see pass the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned.