Feb 230 2020 - Shopify Soars On Improved Merchant Offerings

Ontario-based Shopify (NYSE:SHOP) continues to have a strong run. The company recently announced its fourth quarter results that shattered market expectations and sent the stock soaring to record high levels.  

Shopify’s Financials

Shopify’s fourth quarter revenues grew 47% to 5.2 million, significantly ahead of the market’s forecast of 2.5 million. Net income was 1,000, or .01 per share, compared with net loss of .5 million, or .01 per share a year ago. On an adjusted basis, EPS was .43, which was also significantly ahead of the Street’s estimate of .23.

By segment, subscription revenues grew 37% to 3.2 million, ahead of the estimates of 7.9 million. Merchant solutions revenue rose 53% to 2 million compared with the Street’s forecast of 4 million.

Among other metrics, gross merchandise volume (GMV) rose 47% to .6 billion in the quarter, ahead of the estimates of .03 billion. Gross Payments Volume grew 43% to a record .9 billion. Monthly Recurring Revenue (MRR) at the end of the year grew 32% to .9 million. Shopify Plus contributed .6 million, or 27%, of MRR compared with 25% a year ago.

It ended the year with revenues growing 47% to .578 billion. Net loss was 4.8 million, compared with .6 million a year ago. On an adjusted basis, net income was .3 million, or .30 per share, compared with .1 million, or .43 per share a year ago.

For the current quarter, Shopify expects revenues of 0-6 million, compared with the market’s forecast of 3.3 million. Shopify expects to end the current year with revenues of .13-.16 billion, compared with the Street’s forecast of .11 billion.

Shopify’s Investment Focus

Over the last year, Shopify has been investing not only on expanding its fulfillment services but also on the development of other offerings. Recently, it released a number of new digital marketing features that are focused on helping brands connect directly with their customers to build relationships.

To drive conversations amongst buyers and customers, it launched Shopify Email and Shopify Chat. To help the merchants market themselves better, it entered into more ad buying partnerships with Facebook and Microsoft that now allow merchants to reach additional buyers without leaving the platform. Besides services and partnerships, Shopify is also delivering hardware to help the merchants. It recently released its new retail hardware collection including Tap & Chip Reader and Dock and Stand that offer a seamless online and offline shopping experience. It plans to continue to build on these point-of-sale offerings in the coming months.

Shopify remains focused on building out its fulfillment network. The company is targeting a 5-year plan for the Network. It is early days for the service, but it claims to have delivered a successful Black Friday Cyber Monday to its merchants to help them generate billion in sales globally to reach more than 25 million consumers during the events.

Shopify’s PaaS Focus

I have written earlier about how some PaaS companies have particular focus on the startup ecosystem to support entrepreneurs to build SaaS applications on their platforms and help them sell these apps through their app marketplaces. The PaaS strategy not only helps these players expand their product ecosystem but also get access to a developer ecosystem.

Shopify is convinced about this opportunity as well. It continues to focus on its PaaS strategy to drive growth. It has opened its platform to third parties to let them build apps that offer niche services to its merchants. It claims that 87% of its entrepreneurs rely on apps to run their business. 11.6 million app installs were reported on their platform compared with 7 million reported in 2017. These apps not only support merchants but also help developers earn revenues. 84% of the apps on the Shopify App Store have earned revenues for the developers.

Shopify claims that developers can earn an average of 2K per year based on the current average annual earnings for the top 25% of its app developers. Since opening its platform to developers, Shopify has provided a cumulative 0 million in payouts to its developers. These are impressive figures supporting my belief that the PaaS environment is an exciting one.

The market is pleased with its performance. Its stock is trading at 1.22 with a market capitalization of .8 billion. It touched a 52-week high of 3.89 earlier this month. The stock was trading at a 52-week low of 7.04 almost a year ago.

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