Image source: Shopify.
Shopify (SHOP 0.95%) -- the e-commerce platform that has been surging lately in terms of customer accounts, total dollar amount of goods moved, and company revenue -- has yet to prove to investors that it can pull in a profit. The company has been publicly traded for about two years, and while its growth rates have been truly impressive, its losses have continued to grow.
How much longer will investors have to wait to see some earnings benefit from all of that growth? According to management in the most recent earnings call on Nov. 2., it could be as early as the end of 2017.
Shopify's impressive growth continues
Shopify designs, sets up, and manages online stores for companies ranging from massive multibillion-dollar entities to solo entrepreneurs just starting out. Shopify has been gaining new merchants on its platform at an incredible rate, more than doubling in the most recent quarter year over year to 325,000. Those merchants sold more than $3.8 billion during the quarter.
Part of the reason the company attracted so many new merchants and so many more sales by those sellers is that Shopify has continued to add ways merchants can reach customers. In 2016, Shopify added selling and payment features through Apple Pay and Facebook Messenger, and has created its own Shopify app to make mobile transactions easier than ever. Most recently, the company announced on Jan. 5 that Shopify merchants are now able to add an Amazon.com sales channel to their Shopify account, selling directly to those searching for products on Amazon.
Image source: Shopify.
Shopify also added more services, such as Shopify Plus, which pairs merchants with a Shopify e-commerce professional to make the sellers' online operations better and to help them move more product. During the most recent quarter, Shopify acquired software design and engineering company Boltmade to help accelerate the development of the Shopify Plus product offering. Those merchant solutions services sales grew 114% year over year in the quarter and now make up nearly half of Shopify's revenue.
Preparing for profitability
Creating so much demand for its service and building out the infrastructure to support so much growth hasn't been cheap for Shopify. While its sales have increased, so have its losses. In the most recent quarter, Shopify's operating costs soared 88% over the prior year, and the company reported a total loss of $0.11 per share.
However, management said in its most recent earnings call that it looks on track to break even by the end of this year. Shopify won't give fiscal 2017 guidance until Q4 and full-year earnings are released in February, but CFO Russ Jones said the following when discussing the company's 2017 investment goals during the Q3 earnings call: "Although these will require investments, some with longer payback periods than other, we continue to feel comfortable with our profitability target for the fourth quarter of 2017."
Image source: Shopify.
In August, the company completed an additional stock offering, which helped cash to increase from $190 million in December 2015 to $400 million by the end of Q3 2015. The company will be able to use some of this cash to offset its heavier expenses, which could help earnings to rise. Additionally, because it has now completed many of its necessary big investments and because sales are rising, its operating costs as a percentage of revenue could also decrease. Together, these will help Shopify meet its breakeven goal and could lead to earnings growth in the future.
Shopify stock -- why this still looks like a good long-term buy
Just because Shopify may break even by Q4 of this year, that doesn't mean investors should expect some wild growth in earnings, or for the company's price-to-earnings to drop substantially. Shopify is, and will remain, a growth-oriented company that doesn't mind spending most or all of its would-be earnings if it will mean preparing for more exponential growth in the years to come. For long-term-oriented investors who believe in Shopify's ability to continue posting substantial market and sales growth, that doesn't sound like a bad thing.
Having a timeline for breaking even by the end of 2017, with plenty of cash to tide it over until then, and with growing sales and new partnerships that are expanding impressively quarter after quarter -- Shopify continues to look like a great stock to buy and hold for what should be continued growth ahead.
