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Shopify (SHOP) Q4 Earnings Surpass Estimates, Shares Up

Zacks Equity Research

Shares of Shopify Inc. SHOP gained 7.8% following fourth-quarter 2019 results and promising revenue guidance for 2020. The company reported fourth-quarter 2019 adjusted earnings of 43 cents per share, surpassing the Zacks Consensus Estimate by almost 87%. Moreover, the figure improved 59.3% on a year-over-year basis.

Total revenues surged 47% from the year-ago quarter to $505.2 million, outpacing the Zacks Consensus Estimate of $482 million.

The top line benefited from an improving merchant base, rapid expansion in international markets and strong holiday sales in Black Friday/Cyber Monday period. The company continues to launch a number of merchant-friendly applications to meet the requirements of a dynamic retail environment, in turn strengthening merchant base.

For full-year 2020, Shopify projects revenues in the range of $2.13-$2.16 billion. The Zacks Consensus Estimate is currently pegged at $2.11 billion.


 

Shares of Shopify have skyrocketed 200.9% in the past year, significantly outperforming industry’s rally of 10.5%.

Quarter in Detail

Subscription Solutions revenues (36.3% of total revenues) surged 37% to $183.2 million driven by persistent growth in Monthly Recurring Revenue (MRR) due to the addition of several new merchants.

As of Dec 31, 2019, MRR was $53.9 million, up 32% from the year-ago quarter. Shopify Plus accounted for $14.6 million, representing 27% of MRR compared with 25% in the quarter ended Dec 31, 2018.

Merchant Solutions revenues (63.7%) advanced 53% to $322 million, primarily on account of growth in Gross Merchandise Volume (GMV), which improved 47% from the year-ago quarter to $20.6 billion.

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

Shopify Capital advanced $115.9 million cash to merchants in the reported quarter, surging 61% compared with $71.8 million in the year-ago quarter. Notably, since the launch of Shopify Capital, cumulative merchant cash advances have improved to $885 million, out of which $150 million was outstanding as of Dec 31, 2019.

Shopify Shipping witnessed robust adoption in the fourth quarter. The offering is being leveraged by 45% of total eligible merchants across the United States and Canada.

Gross Payments Volume (GPV) came in at $8.9 billion, accounting for 43% of GMV processed in the fourth quarter, up from $5.8 billion (41%) in the prior-year quarter.

Purchases from merchants’ stores especially from mobile devices witnessed 80% of traffic and garnered 68% of orders for the quarter ended Dec 31, 2019, up from 78% and 66% reported in the year-ago quarter, respectively.

Notable Developments in Q4

Shopify platform garnered sales of more than $2.9 billion in the Black Friday-Cyber Monday period in 2019. Management noted that majority of online orders were registered via mobile devices. Notably, year-ago GMV figure in the same period stood at $1.8 billion.

In the fourth quarter, Shopify announced the closure of the acquisition of 6 River Systems, provider of warehouse technology. The deal, worth roughly $450 million, is anticipated to boost growth of Shopify Fulfillment Network and enhance merchant experience.

The company also rolled out Shopify Email, a new email marketing tool to aid merchants in enhancing email marketing campaigns with templates, campaign analytics and brand asset importing functionalities.

Operating Details

Non-GAAP gross profit (adjusted for amortization of acquired intangibles) surged 43.7% year over year to $269.9 million. This can be attributed to robust performance of Shopify Plus and Shopify Capital.

Non-GAAP gross margin contracted 200 basis points (bps) from the year-ago quarter to 53%.

Non-GAAP operating expenses surged 45.1% year over year to $241.4 million.

Non-GAAP operating expenses as a percentage of revenues remained flat year over year at 48%.

Shopify reported adjusted operating income of $28.5 million, up 33.1% year over year. Adjusted operating margin remained flat on a year-over-year basis at 6%.
 

Shopify Inc. Price, Consensus and EPS Surprise

Shopify Inc. Price, Consensus and EPS Surprise

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

Balance Sheet & Cash Flow

As of Dec 31, 2019, Shopify ended the reported quarter with cash, cash equivalents and marketable securities balance of $2.455 billion compared with $2.667 billion as of Sep 30, 2019.

The company generated cash from operations of $70.6 million during the year ended Dec 31, 2019, compared with $9.3 million as of Dec 31, 2018.

2019 at a Glance

In 2019, revenues improved 47% over 2018 to $1.578 billion, driven by robust adoption of Shopify Payments, Shopify Capital and Shopify Shipping solutions.

Further, international expansion efforts and innovative expansion of services bodes well. Notably, the company has introduced Shopify Payments across 15 countries to date. Moreover, Shopify platform is available in 20 languages.

Shopify reported merchant base of 29% from outside of core geography (with significant non-English-speaking population) in 2019, comparing favorably with 24% in 2018.

The company also noted that merchants are buying more apps through app store, which is positive. Shopify app store currently offers around 3,700 apps.

We also believe that the company’s strong partner referral system will boost merchant base that will, in turn, drive the top line in 2020. More than 24,500 partners referred merchants to Shopify in the past 12 months.

Guidance

For first-quarter 2020, Shopify projects revenues in the range of $440-$446 million. The Zacks Consensus Estimate for revenues is currently pegged at $444 million.

In the first quarter, the company anticipates adjusted operating loss to be in the range of $30 to $34 million.

For full-year 2020, Shopify anticipates adjusted operating loss for fiscal 2019 to be in the range of $0-$20 million.

Zacks Rank & Stocks to Consider

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

Alteryx AYX, Cirrus Logic CRUS and Garmin GRMN are some better-ranked stocks worth considering, in the broader computer and technology sector, each flaunting 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 Alteryx, Cirrus Logic and Garmin is pegged at 39.85%, 15.27% and 7.35%, respectively.

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