Shopify Inc (US) (NYSE:SHOP) Earnings Delivers - Upside is Still In PlayDate Published: 2017-05-08
Written by Ophir Gottlieb
This article is a snippet from the original published to CML Pro members on 5-3-2017.
Shopify Inc (US) (NYSE:SHOP) beat earnings handily, the stock rose, and what we learned from the earnings conference call re-iterates our bullish thesis.
We added the company for $66.50 on 3-22-2017, and as of this writing the stock is trading at $86.65, up 30%. Based on the earnings results, as promised, Shopify is now promoted to a Spotlight Top Pick.
Shopify Inc (US) (NYSE:SHOP) reported revenue of $127 million for the quarter versus estimate of $122 million. The company reported an EPS loss of $0.15 versus estimates of a $0.22 loss.
The quarter for Shopify Inc (US) (NYSE:SHOP) showed 75% year-over-year revenue growth and gross merchandise volume up 81%, to $4.8 billion. Shopify also raised revenue guidance for full year 2017 to $615 million to $630 million, up from the high $590 million range.
Before we get to the critical elements of the earnings call, let's touch on the story behind Shopify.
From our Top Pock dossier, Shopify is the Pick-Axe to the E-commerce Gold Rush, we get:
Shopify isn't just an investment in e-commerce - that would never make our Top Pick's list - it's an investment in the guts of the online shopping trend - the part that's actually growing.
Shopify is the leading cloud-based commerce software for small- and medium-sized businesses. But the company makes money from more than e-commerce sales, it makes money from businesses coming online.
As of the last earnings call, more than 375,000 businesses now rely on Shopify for their sales and back-office software needs. That's up from 325,000 in the third quarter and 243,000 in the fourth quarter of 2015. Here is the revenue trend (this does not have the latest quarter yet):
And, yes, Shopify merchants can now enable Login and Pay with Amazon, as well as take advantage of Amazon's fulfillment centres in the U.S., Canada, U.K., Germany, France, Italy, Spain, and Japan to make it faster, easier and cheaper to ship their products around the world.
HOW SHOPIFY MAKES MONEY
Shopify allows prospective merchants to set up an online storefront. Online sellers are able to set up a shopping cart, accept credit cards and more than 70 other payment methods, determine shipping rates, and automatically calculate taxes based on jurisdiction. On top of that, Shopify provides web hosting services, optimizes webstores for search engine results, and provides the needed business analytics.
For these services, Shopify charges a subscription fee ranging from $29.00 to $179.00 a month. Shopify also generates additional revenue from the sales of storefront themes, apps that the company claims increase functionality, the registration of domain names, and processing payment fees.
Shopify's total addressable market is the small to medium sized business (SMB) world. In the company's IPO filing it listed that market at "10 million merchants with less than 500 employees operating in our key geographies, and approximately 46 million such merchants worldwide."
But, that's just the tip of the iceberg. As we wrote in the Top Pick dossier, data could be a crown jewel -- it could be the biggest asset Shopify is building.
And now, the good stuff from earnings:
* In Q1 we grew revenue 75% year-over-year to 127.4 million as we saw continued strong growth in both subscription solutions and merchant solutions revenue.
* Subscription solutions revenue grew 60% to 62.1 million driven by growth of a monthly recurring revenue of 62% to 20.7 million.
* Merchants solutions revenue grew 92% to 65.3 million mainly driven by continued strong growth in gross merchandize volume and the expanded adoption of Shopify Payment, Shipping and Capital.
* GMV grew 81% to 4.8 billion as we continue to track merchants to the Shopify platform and make it easier than ever for merchants to capitalize on the shift to multi-channel commerce to grow their sales.
* 1.8 billion of the GMV in the quarter or 38% was processed on Shopify payments. This compares with 1 billion or 37% in Q1 of 2016.
* Gross margin dollars once again grew faster than revenue in the quarter
* More than 12,000 partners from over 110 countries have referred merchants to us in the past 12 months.
* The percentage of our merchants using Shopify Shipping continues to grow as well, with nearly one in four merchants with orders originating in the US now on board.
* We hit a major milestone in mid-March where our machine learning algorithms, fully automate our offers to merchants for these advances. This means offers are now personalized based on individual merchant performance, rather than the more general criteria had merchants in to groups.
* Our sold-out Unite conference for Shopify partners brought together more than 1,000 app developers and web designers to talk shop, as we introduced our new APIs and platform functionality
* [T]he Shopify wholesale channel addresses a long standing need for merchants to seamlessly tap in to their wholesale market.
* Shopify Plus clients that have launched in the past few months includes fashion brands like Fossil Group, [scotch] and watches; Iowa retailer, Harley Quinn; event producer, Live Nation; Sears' new Canadian discount chain. Health and beauty brands like Borghese; Tyra Banks' cosmetic line called Tyra; and Miranda Kerr's Kora Organics.
WHY THIS MATTERS
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Each company in our 'Top Picks' is has been selected as a future crown jewel of technology. Market correction or not, recession or not, the growth in these areas is a near certainty.
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Thanks for reading, friends.
The author is long shares of Shopify Inc (US) (NYSE:SHOP).
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