It has been about a month since the last earnings report for Shopify (SHOP). Shares have added about 0.6% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Shopify due for a pullback? 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 Q1 Earnings & Revenues Surpass Estimates
Shopify reported first-quarter 2021 adjusted earnings of $2.01 per share significantly outpacing the Zacks Consensus Estimate by 157.69%. The company had reported adjusted earnings of 19 cents per share in the prior-year quarter.
Total revenues improved 110% from the year-ago quarter’s figure to $988.6 million, which beat the Zacks Consensus Estimate by 15.61%.
COVID-19 pandemic has altered consumer spending behavior considerably and triggered online store creation. The company’s top line benefited from growth in the number of merchants as more of them joined the Shopify platform due to COVID-19 induced uptick in digital commerce. Moreover, growth was driven by e-commerce boom, and more entrepreneurs choosing Shopify to launch and grow their businesses in the first quarter.
Quarter in Detail
Subscription Solutions revenues surged 71% to $320.7 million driven by persistent growth in Monthly Recurring Revenue (MRR) due to the addition of new merchants. Incremental revenues from new Retail POS Pro subscription offering, with subscription pricing coming into effect in November 2020, contributed to growth. Moreover, strong app growth and conversion from free trial to paid members remain positives.
As of Mar 31, 2021, MRR was $89.9 million, up 62% from the year-ago quarter. Shopify Plus accounted for $23.1 million, representing 26% of MRR compared with 28% in the quarter ended Mar 31, 2020. This was driven by significant increase in number of merchants, who joined the platform on standard plans.
Merchant Solutions revenues advanced 137% to $668 million, primarily courtesy of growth in Gross Merchandise Volume (GMV) that improved 114% from the year-ago quarter’s figure to $37.3 billion.
Gross Payments Volume (GPV) was $17.3 billion, accounting for 46% of GMV processed in the first quarter and up from $7.3 billion (42%) in the prior-year quarter.
Shopify Capital advanced $308.6 million cash (and loans) to merchants in the United States, Canada, and the U.K. in the reported quarter, reflecting an increase of 90% compared with $162.4 million in the year-ago quarter advanced to merchants in the United States. Since the launch of Shopify Capital, cumulative merchant cash advances have risen to $2 billion, out of which $312.8 million was outstanding as of Mar 31, 2021. Shopify Shipping also witnessed robust adoption in the first quarter.
Key Business Highlights
More new merchants signed to Shopify Fulfillment Network in first-quarter 2021. Increasing investments on expanding robotics and fulfillment technology capabilities hold promise.
Further, the company’s strong partner referral system is anticipated to boost merchant base that will drive the top line in 2021. More than 45,800 partners referred merchants to Shopify in the past 12 months, up 73% over 26,400 for the 12 months period ended Mar 31, 2020.
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. Notably, Shop app integrates features from both Shop Pay and Arrive and enables customers to easily discover local businesses, receive relevant product recommendations, check out effortlessly, and track all of their online orders.
Besides, the company is well-poised to capitalize on e-commerce boom via rapid uptake of its new point of sale software — Shopify POS. The enhanced features of Retail POS and POS Pro are likely to drive its adoption among brick-and-mortal retailers.
Moreover, integrating Shopify platform with expanding sales channels from Facebook’s Facebook shops, Walmart’s Walmart.com and Pinterest; and TikTok marketing channel, to enable merchants expand sales and broaden business avenues, is expected to drive new buyer traffic to their stores. This favors Shopify’s prospects over the longer haul.
Shopify has also expanded its accelerated checkout, Shop Pay, to Facebook and Instagram. This will enable Shopify Payments to process transactions by Shopify merchants on Facebook shops and Instagram checkout as the integration gets fully implemented later this year.
Shopify noted that it ended first quarter with Shop having more than 107 million registered users, which included buyers that opted in to Shop Pay, Shop App and other app users. The company ended first quarter with more than 24 million monthly active users. Also, Shop Pay facilitated nearly $24 billion, by the end of first quarter, in cumulative GMV since its launch in 2017.
Operating Details
Non-GAAP gross profit (adjusted for amortization of acquired intangibles) soared 114% year over year to $565.1 million. This can be attributed to higher Shopify Payments margins.
Nevertheless, non-GAAP gross margin expanded 100 basis points (bps) from the year-ago quarter’s level to 57%.
Non-GAAP operating expenses surged 30.7% year over year to $354.3 million.
Non-GAAP operating expenses, as a percentage of revenues, contracted to 36% from 58% in the year-ago period.
Shopify reported adjusted operating income of $210.8 million against an adjusted operating loss of $7.3 million in the year-ago quarter. As a percentage of revenues, the figure expanded to 21% from (2%) in the year-ago period. The increase was driven by robust revenue growth and contracting expenses.
Balance Sheet & Cash Flow
As of Mar 31, 2021, Shopify ended the reported quarter with cash, cash equivalents and marketable securities balance of $7.87 billion compared with $6.39 billion as of Dec 31, 2020. The increase is backed by $1.5 billion of net proceeds from Shopify’s offering of Class A subordinate voting shares in the reported quarter.
Shopify generated net cash flow in operations of almost $135.7 million for three months-period ended Mar 31, 2021 compared with $85 million for three months-period ended Mar 31, 2020.
Guidance
Although the company expects to gain from ongoing growth trends, it refrained from providing any formal guidance for 2021, which can be attributed to COVID-19 induced uncertainties prevailing in the market pertaining to unemployment, and the magnitude and duration of adverse business impacts.
Management noted that although demand remains higher for subscriptions compared to pre-COVID-19 levels, the company does not anticipate growth rate in 2021 to match that of the 2020 levels.
Management believes that coronavirus crisis led e-commerce boom, and momentum in online retail spending in 2020 are likely to normalize in 2021 as vaccine roll outs will enable population to move freely, encouraging offline retail sales.
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 when compared with any year prior to 2020.
Also, 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.
The company expects revenue to grow rapidly in 2021 albeit at a lower rate compared with 2020.
How Have Estimates Been Moving Since Then?
It turns out, fresh estimates have trended upward during the past month. The consensus estimate has shifted 25.85% due to these changes.
VGM Scores
At this time, Shopify has an average Growth Score of C, however its Momentum Score is doing a lot better with an A. However, the stock was allocated a grade of F on the value side, putting it in the lowest quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of C. 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. Notably, Shopify has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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