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Shopify (SHOP) Q1 Earnings Miss Estimates, 1H22 View Tepid

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·4 min read
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Shopify SHOP reported first-quarter 2022 adjusted earnings of 20 cents per share, which missed the Zacks Consensus Estimate by 75% and declined a whopping 90% year over year.

Total revenues increased 21.7% year over year to $1.20 billion, which lagged the Zacks Consensus Estimate by 3.27%. The top line benefited from strong growth witnessed in Merchant Solutions revenues.

Shopify expects year-over-year revenue growth for 2022 to be lower in the first half and highest in the fourth quarter. Absence of government stimulus and COVID-triggered acceleration of e-commerce is expected to hurt top-line growth in the first half of 2022.

Shopify shares lost 14.91% to close at $413.09 on May 5. The stock is down 70% year to date, underperforming the Zacks Computer & Technology sector’s decline of 18.9%.

Quarter in Detail

Subscription Solutions revenues climbed 7.5% year over year to $344.8 million, driven by the addition of new merchants.

Shopify Inc. Price, Consensus and EPS Surprise

Shopify Inc. Price, Consensus and EPS Surprise
Shopify Inc. Price, Consensus and EPS Surprise

Shopify Inc. price-consensus-eps-surprise-chart | Shopify Inc. Quote

Merchant Solutions revenues surged 28.6% year over year to $858.9 million, driven by strong Gross Merchandise Volume (“GMV”) that improved 16% year over year to $43.2 billion.

As of Mar 31, 2022, Monthly Recurring Revenue (“MRR”) was $105.2 million, up 17% from the year-ago quarter. The growth benefited from more merchants joining the platform and increase in the number of retail locations using POS Pro.

Shopify Plus revenues were $31.8 million, representing 30% of MRR compared with 26% in the quarter ended Mar 31, 2021.

Gross Payments Volume (“GPV”) was $22 billion, constituting 51% of GMV processed in the first quarter compared with $17.3 billion (46% of GMV) in the year-ago quarter.

GPV benefited from strong performance by merchants on Shopify Payments, growing adoption of Shopify Plus, increased penetration of Shop Pay and Shopify Markets, and expanded availability of Shopify’s POS Pro hardware with integrated payments.

Shopify Capital advanced $346.7 million in cash and loans to merchants in the United States, Canada and the U.K. in the reported quarter, up 12% year over year. Since the launch of Shopify Capital, cumulative merchant cash advances have risen to $3.3 billion, out of which $486.5 million was outstanding as of Mar 31, 2022.

Operating Details

Non-GAAP gross profit increased 14.3% year over year to $646.1 million. Gross margin contracted 350 basis points (bps) from the year-ago quarter’s level to 53.7%.

Non-GAAP operating expenses surged 73.4% year over year to $614.1 million, reflecting expansion in research & development and sales & marketing teams, as well as in offline performance marketing initiatives.

Shopify reported adjusted operating income of $31.9 million in the quarter, down 85% year over year. Operating margin was 2.7% compared with year-ago quarter’s reported figure of 21.3%.

Balance Sheet

As of Mar 31, 2022, Shopify ended the reported quarter with cash, cash equivalents and marketable securities balance of $7.25 billion compared with $7.77 billion as of Dec 31, 2021.

Post Q1 Development – Stock Split & Deliverr Acquisition

Shopify announced a 10-for-one split of its Class A and Class B shares as well as updates to its governance structure, both of which will be voted on at its Annual General and Special Meeting of Shareholders in June.

Shopify reached an agreement to buy Deliverr for $2.1 billion, consisting of approximately 80% in cash and 20% in Shopify Class A Subordinate Voting Shares. The addition of Deliverr will more than double the size of Shopify’s fulfillment team.

Guidance

For 2022, Subscriptions Solutions’ revenue growth is expected to be comparable to that in 2021. Merchant Solutions revenue growth is expected to be more than twice the rate of Subscription Solutions revenue growth on a year-over-year basis.

However, gross profit growth in dollar terms is expected to lag revenue growth due to higher percentage of lower-margin Merchant Solutions revenues in the mix.

The Deliverr acquisition is expected to be dilutive to operating margin in 2022.

Shopify expects capital expenditures to be $200 million.

Zacks Rank & Stocks to Consider

Shopify currently has a Zacks Rank #3 (Hold).

Better-ranked stocks in the broader sector are Analog Devices ADI, Angi ANGI and Avaya AVYA. All the three stocks carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Analog Devices shares have outperformed the sector year-to-date, declining 10%. ADI is set to report second-quarter fiscal 2022 results on May 18.

Angi’s shares have underperformed the sector year to date, declining 51.6%.

ANGI is set to report first-quarter 2022 on May 10.

Avaya’ shares have underperformed sector year to date, declining 52.1%.

Avaya is set to report second-quarter fiscal 2022 results on May 10.


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