Shopify Earnings Preview: Will Momentum Continue?

Shopify (SHOP), Canada’s largest company by market capitalization, is set to report its second quarter earnings on July 28, 2021, before markets open. The management team will host a conference call to discuss the second-quarter results at 8:30am EST.

Shopify is a leading global E-commerce company offering subscription-based software that allows retailers to sell their products online.

Since the beginning of the global pandemic, the stock has surged over 230% to its current all-time highest levels of around $1,640/share (USD).

Given its current momentum, the coming quarterly result could help maintain momentum for the stock, allowing it to continue its climb.

Let’s take a closer look at what analysts are expecting for the company’s Q2 print. (See Shopify stock charts on TipRanks)

Earnings Preview

Analyst’s are expecting Shopify to report a profit of $0.97 per share on revenues of approximately $1.04 billion. The company didn’t provide specific guidance for the quarter.

Prior Period Results

In the previous quarter, the company reported adjusted earnings of $2.01 per share, compared to adjusted earnings of $0.19 in the prior-year quarter. The result also handily beat the consensus estimate of $0.75. In addition, revenue increased by 110% year-over-year to $988.65 million and surpassed analysts’ expectations of $861.09 million.

Factors to Watch For

Among the key things investors are watching for this quarter are merchant count and churn rates, as the global pandemic has driven many companies to accelerate their online offerings. However, expectations are that growth in new merchants will moderate as global economies begin to re-open.

National Bank noted, “The pandemic drove outsized growth in merchants to Shopify (particularly in Q2/F20). This happened for a number of reasons – the two most notable were (1) to enable traditional brick-and-mortar enterprises to operate (online) amidst lockdowns; and (2) the creation of new merchants under lockdowns.”

Prior to COVID, National Bank had estimated an annualized churn rate of +80%, but has since lowered its estimate to the 50%-60% as more merchants have opted to maintain their platform subscriptions.

As the world becomes more digital, merchants are shifting their brick-and-mortar only strategies to an omnichannel approach. This should bode well for Shopify’s long term merchant count.

Shopify has managed to gain a leading competitive position, as measured by the amount of retail E-commerce sales based on Gross Merchandise Value (GMV). Second only to Amazon, Shopify has grown to become a top-three E-commerce player, with an almost 9% share of U.S. retail E-commerce sales in 2020.

Recent Developments

In June, Shopify hosted its 2021 Unite conference, where it highlighted developers and platform improvements. This year’s conference was seen as more technical than in prior years, as the company demonstrated its increasing prioritization of developers who provide third party applications. Through these third-party applications, Shopify is better able to address incremental use cases, which help serve its growing total addressable market.

Platform improvements included offerings such as Online Store 2.0, which was the company’s most visible product announcement. This represented a material upgrade to the core offering, by allowing merchants to better customize their stores through unique experiences.

Another major improvement was to its payments platform, allowing additional payment gateways which help address commerce outside of North America. Global scalability is seen as the company’s next chapter of growth, as the company works to enhance its core infrastructure.

Analyst Recommendations

On July 15^th, National Bank analyst Richard Tse increased his price target and earnings estimates on the stock.

Tse explained, “We’re increasing our estimates and target price for SHOP to US$2,000 (from US$1,650). As we approach Q2 reporting season, we think it’s fair to say the comparables are more challenging on a year-over-year basis given the Q2/ F20 surge in the early days of COVID. Yet, while we had been expecting a moderating pace of growth this year given the above, our analysis suggests Shopify has been tracking above its sequential quarterly growth rate excluding Q2/F20 which is potentially all that more impressive given the increasing base.”

Furthermore, the analyst cited his rational for the upgrade, saying, “Based on our analysis, Shopify had net merchant growth of around 16% Q/Q – which would be the highest in the last two and a half years, excluding Q2 of 2020 (COVID bump quarter). And it’s that increased merchant base that should bring accompanying GMV to lessen the impact of “normalizing” growth in e-Commerce post the height of the COVID impact in the prior year.”

On TipRanks, SHOP has a consensus rating of Moderate Buy, based on 12 Buy, 8 Hold, and 0 Sell ratings. The average Shopify price target is $1,609.44, suggesting a possible 12-month downside of 2.06%. SHOP closed trading yesterday at a price of $1,643.32 per share.