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Shopify (SHOP) Beats on Q3 Earnings & Revenues, Ups '19 View

Zacks Equity Research

Shopify Inc. SHOP reported third-quarter 2019 adjusted earnings of 13 cents per share, surpassing the Zacks Consensus Estimate of 11 cents. Moreover, the figure improved from 4 cents reported in the year-ago quarter.

Total revenues surged 45% from the year-ago quarter to $390.6 million, outpacing the Zacks Consensus Estimate of $384 million. The figure also fared better than management’s guided range of $377-$382 million.

The top line benefited from an improving merchant base and rapid expansion in international markets. 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.

Shares of Shopify have gained 125.7% year to date, substantially outperforming industry’s rally of 7.1%.

Quarter in Detail

Subscription Solutions revenues (42.4% of total revenues) surged 37% to $165.6 million driven by persistent growth in Monthly Recurring Revenue (MRR) due to the addition of several new merchants.

As of Sep 30, 2019, MRR was $50.7 million, up 34% from the year-ago quarter figure of $37.9 million. Shopify Plus accounted for $13.5 million, representing 27% of MRR compared with 24% in the quarter ended Sep 30, 2018.

Merchant Solutions revenues (57.6%) advanced 50% to $225 million, primarily on account of growth in GMV, which improved 48% from the year-ago quarter to $14.8 billion.

Robust performance of Shopify Payments, Shopify Shipping and Shopify Capital also aided growth.

Shopify Capital advanced $141 million cash to merchants in the reported quarter, soaring 85% compared with $76.4 million in the year-ago quarter. Notably, since the launch of Shopify Capital, cumulative merchant cash advances have improved to almost $768.9million, out of which $166 million was outstanding as of Sep 30, 2019.

Shopify Shipping witnessed robust adoption in the third quarter. The offering is being leveraged by approximately 44% of total eligible merchants across the United States and Canada.

Gross Payments Volume (GPV) came in at $6.2 billion, accounting for 42% of GMV processed in the third quarter, up from $4.1 billion (41%) in the prior-year quarter.

Purchases from merchants’ stores especially from mobile devices witnessed 81% of traffic and garnered 71% of orders for the quarter ended Sep 30, 2019, up from 77% and 67% reported in the year-ago quarter, respectively.

Operating Details

Non-GAAP gross profit surged 44.7% year over year to $219.4 million. This can be attributed to “new payment partner pricing terms” and robust performance of Shopify Shipping and Shopify Capital.

Non-GAAP gross margin remained flat from the year-ago quarter to 56%.

Non-GAAP operating expenses surged 35.6% year over year to $200.9 million. Non-GAAP operating expenses as a percentage of revenues contracted 400 bps to 53%.

Shopify reported adjusted operating income of $10.5 million against the year-ago quarter’s loss of $2.4 million.

Balance Sheet & Cash Flow

Shopify ended the reported quarter with cash, cash equivalents and marketable securities balance of $2.667 billion compared with $2.013 billion at the end of previous quarter.

The company generated cash from operations of $17.7 million during the nine months ended Sep 30, 2019.

Guidance

For fourth-quarter 2019, Shopify projects revenues in the range of $472-$482 million. The Zacks Consensus Estimate for revenues is currently pegged at $473.2 million.

In the fourth quarter, the company expects adjusted operating income to be in the range of $10 to $20 million.

For full-year 2019, Shopify raised outlook. Management now projects revenues in the range of $1.545-$1.555 billion better than the previously guided range of $1.51-$1.53 billion. The Zacks Consensus Estimate is currently pegged at $1.54 billion.

Management now expects adjusted operating income for fiscal 2019 to be in the range of $27-$37 million (previously $20-$30 million).

Zacks Rank & Key Picks

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

Some better-ranked stocks in the broader technology sector are Vonage Holdings Corp. VG, Hewlett Packard Enterprise Company HPE and Taiwan Semiconductor Manufacturing Company Ltd. TSM. Each of the stocks flaunt 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 Vonage, Hewlett Packard Enterprise and Taiwan Semiconductor is currently pegged at 5%, 7.4% and 10.4%, respectively.

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