Shopify (SHOP) stock popped on Wednesday after the e-commerce firm reported second quarter earnings and revenue that topped estimates amid strong growth in the subscription business. Guidance for Shopify stock came in above expectations.
On the stock market today, Shopify stock surged 23.5% to 66.97 in early trading.
"Operating margin stole the show, sharply beating consensus," said Jefferies analyst Samad Samana in a report. "The Q3 outlook for growth and margins was better than expected as well. Shopify's Q2 showed the topline is more resilient than feared and management is more committed to margin expansion than expected."
Released before the market open, Shopify earnings for the quarter ending June 30 were 26 cents on an adjusted basis. Also, revenue climbed 21% to $2 billion.
Shopify stock analysts polled by Factset predicted profit of 20 cents on revenue of $1.996 billion.
Further, Shopify said Q2 gross merchandise volume from merchant transactions rose 22% to $67.2 billion vs. estimates of $65.34 billion.
Merchant solutions revenue rose 19% to $1.5 billion billion vs. estimates of $1.47 billion. Subscription revenue climbed 27% to $563 million versus estimates of $529 million. Shopify recently hiked prices for premium services that target bigger companies.
Heading into the Shopify earnings report, shares were down 27% in 2024.
For the current September quarter, Shopify said it expects "revenue to grow at a low-to-mid-twenties percentage rate on a year-over-year basis." For the third quarter, analysts estimated $2.057 billion in revenue.
The company in 2023 sold its delivery and logistics business to Flexport, easing Wall Street worries over rising capital spending.
Further, Shopify sets up e-commerce websites for small businesses, and partners with others to handle digital payments and shipping.
Shopify's Strong Performance in a Softening Market
Shopify Inc.’s stock price jumped Wednesday after the company posted stronger-than-expected second-quarter revenues and profits as well as a solid forecast for its next quarter.
The Ottawa e-commerce software giant generated US$2.045-biillion in revenue, up 22 per cent year-over-year when factoring out the logistics business it sold in 2023. Revenue from both subscription fees for merchants to use its platform and merchant fees for other services including processing payments both exceeded analyst expectations, coming in at US$563-million and US$1.482-million, respectively.
The company’s gross profit of US$1.045-billion and US$333-million free cash flow were also ahead of expectations. Gross merchant volume, representing the total amount of business flowing through its platform, was US$67.2-billion, up 22 per cent. Analyst had expected that number to only reach US$65.7-billion.
“Our Q2 results make it clear: Shopify is rapidly strengthening its position as a leading enabler of global commerce and entrepreneurship,” president Harley Finkelstein said in a release.
Shopify’s stock opened up 18.4 per cent on the Toronto Stock Exchange and kept climbing to a 21 per cent-plus gain in early morning trading. Its shares had experienced a rocky few days as global economic concerns hit stocks, particularly in technology, and are still down by about 15 per cent year to date.
The company’s stock had swooned by close to 20 per cent in May for its largest single-day loss in its nine years as a public company when Shopify warned operating expenses would climb from the first quarter by an amount in the low to mid-single digit percentage range. But in Wednesday’s report, operating expenses actually fell by nearly 8 per cent from the first quarter, to US$804-million, while operating expenses as a share of revenue came in at 39.3 per cent, down from 43.5 per cent.
Shopify's Diversified Merchant Base Helps Weather Economic Challenges
Shopify, Canada’s largest technology company by market capitalization, forecast its third quarter revenues will rise by an amount in the low to mid 20-per-cent range, compared to an analyst consensus forecast of about 20 per cent, while it again warned operating expenses would rise from the prior quarter, reaching 41 per cent to 42 per cent of revenues. But the company also forecast its gross margin would climb by 50 basis points over second-quarter levels, after warning they would dip by 50 basis points last quarter. The gross margin rate actually dipped by just 30 basis points in the second quarter, reaching 51.1 per cent of revenues.
Shopify “continues to perform at a high level when compared to global peers, and we think a positive reaction is warranted,” ATB Capital Markets analyst Martin Toner said in a note. “We believe the Q2 results and guidance should give investors confidence that Shopify’s growth story is intact” and that its “world-class large cap growth story is undervalued.”
National Bank Financial analyst Richard Tse said in an e-mail: “Both the results and outlook point to growing operating leverage and in a market that’s asking for efficient capital allocation, I think that will be well received.”
Shopify posted a net profit of US$171-million, or 13 cents per share, which was weighted down in part by the fluctuating value of its equity holdings in three other companies that sell services to its merchants, Global-E Online Ltd., Affirm Holdings, Inc. and Klaviyo, Inc. All three of their share prices were lower at the end of the second quarter than three months prior.
However, analysts pay closer attention to the company’s adjusted net income, which factors out stock based compensation, the equity loss on investments and other elements. That came in at US$345-million, or US26 cents per share, well ahead of the 21 cents analysts had forecast.
Shopify's President Sees Company Weathering Economic Storm
“Our merchants do seem to be outperforming and doing better than others,” Harley Finkelstein told analysts on a Wednesday earnings call.
“I think a big part of the reason that we are not seeing the same thing that others might is because we simply have merchants across a ton of verticals and across a ton of geographies.”
The Ottawa-based e-commerce software company caters to both small businesses and multi-national giants. It’s recently attracted the likes of burgeoning brands including jeweler Mejuri and apparel company Evereve, along with household names such as Toys “R” Us, Barnes & Noble and Casper.
The bevy of brands have helped Shopify cope with lower consumer spending caused by high inflation and elevated borrowing rates in many of its key markets.
Several brands have said they expect the softening to continue as the year progresses, but Shopify’s chief financial officer Jeff Hoffmeister said on the same call as Finkelstein that their company hasn’t seen “any significant deterioration or improvement” during its second quarter.
That quarter delivered a net income of US$171 million or 13 cents US per diluted share, Shopify said Wednesday.
The result for the company, which keeps its books in U.S. dollars, compared with a net loss of US$1.31 billion or US$1.02 per diluted share a year earlier when the company recorded a US$1.34-billion charge on the sale of its logistics business.
Revenue for the quarter ended June 30 totalled US$2.05 billion, up from US$1.69 billion in the same quarter last year.
The increase came as subscription solutions revenue reached US$563 million, up from US$444 million a year ago, while merchant solutions revenue amounted to US$1.48 billion, up from US$1.25 billion.
“We are at our strongest yet,” Finkelstein told analysts just after the results were released.
As he spoke, the company's shares on the Toronto Stock Exchange soared almost 24 per cent, or $17.59, to $92.15.
Meanwhile, TD Securities analyst Daniel Chan saw the quarter as being a reflection of “Shopify’s e-commerce leadership and continued ability to gain market share,” especially because its results were strong “despite a mixed consumer spend environment,” he said in a note to clients.
He added that parts of the company’s guidance were “better than expected.”
In its outlook for its third quarter, Shopify said it expects revenue to grow at a low-to-mid-twenties percentage rate on a year-over-year basis.
During that quarter, Hoffmeister said the company plans to hire for some key roles in its sales and research and development divisions. He expects the year to end with “minimal” headcount growth. He said Shopify had 8,300 employees at the end of 2023.
Shopify laid off 20 per cent of its staff in May 2023 in a move meant to help it more intensely focus on its main operations. In July 2022, it also cut about 1,000 workers.
A Bright Future for Shopify
The strong performance in the second quarter and the positive outlook for the third quarter indicate that Shopify is well-positioned for continued growth in the years to come. The company's focus on its core business, its diversified merchant base, and its commitment to innovation have all contributed to its success. With the global e-commerce market expected to continue to grow in the coming years, Shopify is well-positioned to capitalize on this trend. Investors are optimistic that the company's strong earnings will continue to drive stock price gains in the near future.
