Shopify Inc. SHOP-T +17.85%increase reported earnings and guidance Wednesday that doused skepticism about its revenue and profit growth at a time of heightened macroeconomic uncertainty, driving the stock to one of its best single-day performances.
The Ottawa software giant, whose platform powers about 10 per cent of all U.S. e-commerce and is sold in 170 countries, generated US$2.045-billion in revenue in the second quarter ended June 30. That was up 25 per cent year-over-year in its existing operations.
Revenue from both subscriptions to its platform and merchant fees for other services, including payments, surpassed expectations, coming in at US$563-million and US$1.48-billion, respectively. Shopify’s gross profit of US$1.045-billion and US$333-million free cash flow also beat expectations.
Gross merchandise volume (GMV), representing the amount of business flowing through its platform, was US$67.2-billion, up 22 per cent and above consensus analysts expectations of US$65.7-billion.
Shopify’s stock closed up 17.8 per cent on the New York Stock Exchange, its seventh best single-day performance since the company went public in May, 2015.
It was a landmark quarter for the 20-year-old company co-founded by chief executive officer Tobi Lutke as a snowboard e-commerce retailer, as it surpassed US$1-trillion in cumulative GMV. Shopify delivered strong growth in multiple areas as it continued to build out a platform it refers to as a comprehensive unified operating system for merchants to handle all aspects of their commercial operations – online, in store, across borders and in multiple countries.
The share of Shopify’s GMV that went through its fee-generating payments processing service reached 61 per cent, up from 58 per cent a year earlier. Its push into providing point-of-sale systems for “offline” physical retailers had a 27-per-cent year-over-year jump in volumes processed.
Shopify’s merchant count increased by an undisclosed amount as it added brands including Italian eyewear conglomerate Luxottica Group S.p.A. and British football club Newcastle United, driving 32-per-cent GMV expansion in Europe. They joined a platform that powers celebrity and online-native brands including Kylie Cosmetics, Lionel Messi’s Más+ hydration drink business and Gymshark, and e-commerce sales for established brands such as Mattel, Heinz and Staples.
“We are building for the long term and our business model is working,” Shopify president Harley Finkelstein said on a conference call with analysts. He said the results show “that we can achieve a seriously meaningful combination of both growth and profitability” while continuing to invest in the business.
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” in a “world-class large cap growth story” he said was undervalued.
Shopify’s stock has experienced a rocky 2024. Before Wednesday the share price was down 30 per cent on the year and 69 per cent from its all-time high in November, 2021, at the peak of a pandemic-fuelled bubble for tech companies.
Shopify’s 19-per-cent stock drop in May was its largest single-day loss after it warned operating expenses would climb from the first quarter by an amount in the low- to mid-single-digit percentage range. Those jitters reflected a number of factors, including a prolonged downturn for technology stocks and macroeconomic concerns.
Investors also want to see high-growth companies strive for better bottom-line performance without sacrificing too much top-line revenue growth. That has proven to be a tricky balance for many companies to pull off, and with Shopify trading at a relatively rich valuation, anything short of expectations has been swiftly punished by investors.
But in Wednesday’s report, Shopify pleasantly surprised investors and analysts by reporting operating expenses did not rise, but 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. The company achieved that in part by shaving costs off a large conference it held and by delaying the start of a large marketing campaign to the third quarter.
It held its ranks to about 8,300 employees, unchanged for several quarters. Chief financial officer Jeff Hoffmeister forecast the company’s operating expense ratio would creep up to 41 per cent to 42 per cent in the third quarter, but still down from a year earlier.
The CFO told analysts that despite macroeceonic concerns about softening consumer spending, the company wasn’t seeing that in the data from its merchants. “I think we’re simply taking share” away from competitors, he said.
Shopify, Canada’s largest technology company by market capitalization, forecast third-quarter revenues will rise by an amount in the low- to mid-20-per-cent range, compared with an analyst consensus forecast of about 20 per cent. It predicted gross margins 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, to 51.1 per cent of revenues.
“Both the results and outlook point to growing operating leverage and in a market that’s asking for efficient capital allocation,” National Bank Financial analyst Richard Tse said in an e-mail.
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 26 US cents per share, well ahead of the 21 cents analysts had forecast.
With a report from David Milstead
