Shopify (SHOP) Down 1.6% Since Last Earnings Report: Can It Rebound?
A month has gone by since the last earnings report for Shopify (SHOP). Shares have lost about 1.6% 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 its most recent earnings report in order to get a better handle on the important drivers.
Shopify Q1 Earnings Beat Estimates, Revenues Rise Y/Y
Shopify reported first-quarter 2024 adjusted earnings of 20 cents per share, comfortably beating the Zacks Consensus Estimate by 25%. The company reported earnings of 1 cent per share in the year-ago quarter.
Total revenues jumped 23.4% year over year to $1.86 billion, which beat the Zacks Consensus Estimate by 1.36%.
Quarter in Detail
Subscription Solutions revenues increased 33.8% year over year to $511 million, primarily due to more merchants joining the platform, as well as pricing changes for existing merchants on its Standard subscription plans.
Merchant Solutions revenues improved 20% year over year to $1.35 billion, driven by robust Gross Merchandise Volume (GMV), which improved 23% year over year to $60.9 billion.
In the reported quarter, $36.2 billion of GMV was processed on Shopify Payments in the first quarter, 32% higher year over year. The penetration rate of Shopify Payments, as a percentage of GMV, was 60% compared with 56% in the year-ago quarter.
As of Mar 31, 2024, Monthly Recurring Revenues (MRR) were $151 million, up 32% from the year-ago quarter. Shopify Plus revenues were $48 million, representing 32% of MRR compared with 33% in the year-ago quarter.
In the reported quarter, Shop Pay increased 56%, processing $14 billion of GMV and accounted for 39% of Shopify’s Gross Payments Volume (GPV).
GPV grew to $36.2 billion, constituting 60% of GMV processed in the first quarter compared with $27.5 billion (56% of GMV) in the year-ago quarter.
Operating Details
Non-GAAP gross profit increased 30.4% year over year to $962 million. The gross margin expanded 280 basis points (bps) year over year to 51.7%.
Adjusted sales and marketing expenses, as a percentage of revenues, gained 80 bps year over year to 18.8%. Adjusted general and administrative expenses decreased 170 bps to 5.3%.
Moreover, adjusted research and development expenses, as a percentage of revenues, decreased 920 bps year over year to 14.1%.
Non-GAAP operating expenses decreased 1% year over year to $761 million. Operating expenses, as a percentage of revenues, were 40.9% compared with the year-ago quarter’s 51%.
Shopify’s adjusted operating income was $201 million against the year-ago quarter’s loss of $31 million.
Balance Sheet
As of Mar 31, 2024, Shopify had cash, cash equivalents and marketable securities balance of $5.2 billion compared with $5 billion as of Dec 31, 2023.
The free cash flow was $232 million compared with $446 million in the year-ago quarter.
Guidance
For the second quarter of 2024, Shopify expects revenue growth in the high teens on a year-over-year basis. Adjusting for a 300-400 bps headwind related to the divestiture of the logistics business, revenues are expected to grow in the low to mid-twenties on a year-over-year basis.
The gross margin is expected to decrease 50 bps sequentially.
Operating expenses, as a percentage of revenues, are expected between 45% and 46%.
How Have Estimates Been Moving Since Then?
Estimates revision followed a flat path over the past two months.
VGM Scores
Currently, Shopify has a strong Growth Score of A, 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 bottom 20% 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
Shopify has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
Performance of an Industry Player
Shopify is part of the Zacks Internet - Services industry. Over the past month, Alphabet Inc. (GOOG), a stock from the same industry, has gained 4%. The company reported its results for the quarter ended March 2024 more than a month ago.
Alphabet reported revenues of $67.59 billion in the last reported quarter, representing a year-over-year change of +16.4%. EPS of $1.89 for the same period compares with $1.17 a year ago.
For the current quarter, Alphabet is expected to post earnings of $1.87 per share, indicating a change of +29.9% from the year-ago quarter. The Zacks Consensus Estimate has changed +0.1% over the last 30 days.
The overall direction and magnitude of estimate revisions translate into a Zacks Rank #1 (Strong Buy) for Alphabet. Also, the stock has a VGM Score of C.
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