A month has gone by since the last earnings report for Shopify (SHOP). Shares have lost about 0.6% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Shopify due for a breakout? Before we dive into how investors and analysts have reacted as of late, let’s take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
Shopify’s Q2 Earnings and Revenue Beat Estimates
Shopify reported second-quarter 2021 adjusted earnings of $2.24 per share, significantly outpacing the Zacks Consensus Estimate by 128.6%. On a year over year basis, adjusted earnings per share jumped 113.3%.
Total revenues surged 57% from the year-ago quarter’s figure to $1.119 billion, which beat the Zacks Consensus Estimate by 7.1%. The top line benefitted from strong growth witnessed in subscription solutions and merchant solutions revenues.
Quarter in Detail
Subscription Solutions revenues surged 70% to $334.2 million driven by addition of new merchants.
As of Jun 30, 2021, MRR was $95.1 million, up 67% from the year-ago quarter. Shopify Plus accounted for $25.2 million, representing 26% of MRR compared with 29% in the quarter ended Jun 30, 2020. This was driven by significant increase in number of merchants, who joined the platform as well as higher revenue from Retail POS Pro subscription solution.
Merchant Solutions revenues advanced 52% to $785.2 million, primarily courtesy of growth in Gross Merchandise Volume (GMV) that improved 40% from the year-ago quarter’s figure to $42.2 billion.
Gross Payments Volume (GPV) was $20.3 billion, constituting 48% of GMV processed in the second quarter and up from $13.4 billion (45%) in the prior-year quarter.
Shopify Capital advanced $363 million cash (and loans) to merchants in the United States, Canada and the U.K. in the reported quarter, up 137% from $153 million advanced to merchants in the United States in the year-ago quarter. Since the launch of Shopify Capital, cumulative merchant cash advances have risen to $2.3 billion, out of which $415.4 million was outstanding as of Jun 30, 2021.
Key Highlights
The company’s strong partner referral system is anticipated to boost merchant base that will drive the top line in 2021. More than 46,400 partners referred merchants to Shopify in the past 12 months, soaring 53% from 30,300 for the 12 months period ended Jun 30, 2020.
At the Shopify Unite 2021 event, Shopify rolled out Online Store 2.0 upgrade to help merchants to increase visibility for their brands and boost online experiences.
Shopify is banking on its new mobile shopping app — Shop, and applications like Shopify Email, Shopify Plus Admin, Shop Pay Installments, Shopify Flow and Shopify Balance to bolster customer engagement in the days ahead.
Shopify extended Shop Pay Installments to merchants in the United States to help them offer customers with flexible and easy checkout.
Shopify revealed that it was extending Shop Pay to all merchants (selling across United States) on both Facebook and Google platforms irrespective of whether these merchants are leveraging Shopify’s online store. This will make Shop Pay as the preferred checkout for all merchants, noted the company.
Shopify noted that it ended second quarter with Shop having more than 118 million registered users, which included buyers that opted in to Shop Pay, Shop App and other app users. The company ended second quarter with more than 23 million monthly active users. Shop Pay facilitated nearly $30 billion, by the end of second quarter, in cumulative GMV since its launch in 2017.
Operating Details
Non-GAAP gross profit (adjusted for amortization of acquired intangibles) increased 64% year over year to $627 million. This can be attributed to higher mix of subscription solutions.
Non-GAAP gross margin expanded 300 basis points (bps) from the year-ago quarter’s level to 56%.
Non-GAAP operating expenses surged 45.8% year over year to $390.2 million.
Non-GAAP operating expenses, as a percentage of revenues, contracted 200 bps to 35% from the year-ago period.
Shopify reported adjusted operating income of $236.8 million up 108.3% year over year. As a percentage of revenues, the figure expanded 500 bps year over year to 21%. The increase was driven by robust revenue growth.
Balance Sheet & Cash Flow
As of Jun 30, 2021, Shopify ended the reported quarter with cash, cash equivalents and marketable securities balance of $7.76 billion compared with $7.87 billion as of Mar 31, 2021.
Shopify generated net cash flow in operations of almost $202.1 million for six months-period ended Jun 30, 2021 compared with $90.2 million for six months-period ended Jun 30, 2020.
Guidance
Management believes that coronavirus crisis led e-commerce boom and momentum in online retail spending seen in 2020 are likely to normalize in 2021 as vaccine roll outs will enable population to move freely, encouraging offline retail sales.
The company expects revenues to grow rapidly in 2021 albeit at a lower rate compared with 2020.
Management noted that although demand remains higher for subscriptions compared with pre-COVID-19 levels, the company does not anticipate growth rate in 2021 to match that of the 2020 levels.
For 2021, the company expects subscriptions solutions revenue growth to be driven by more merchants joining the platform, the tally for which is anticipated to be lower than the figure in 2020 but higher compared with any year prior to 2020.
Management does not anticipate the magnitude of surge in GMV, which helped merchant solutions to grow in 2020, to recur in 2021.
Continued GMV growth driven by existing merchant base, new merchants and expanded adoption of Shopify’s growing portfolio of merchant solutions is anticipated to boost Merchant solutions revenue growth.
Momentum in Shopify Payments, Shopify Shipping, and Shopify Capital, and growing clout of newer solutions such as Shopify Fulfillment Network and 6 River Systems are expected to contribute to revenue growth.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in estimates revision. The consensus estimate has shifted -15.01% due to these changes.
VGM Scores
Currently, Shopify has an average Growth Score of C, though it is lagging a lot on the Momentum Score front with an F. Following the exact same course, the stock was allocated a grade of F on the value side, putting it in the fifth quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of F. If you aren’t focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been trending upward for the stock, and the magnitude of this revision looks promising. It comes with little surprise Shopify has a Zacks Rank #1 (Strong Buy). We expect an above average return from the stock in the next few months.
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