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Shopify Beat Expectations, But Investors Aren't Impressed

By Danny Vena - Aug 2, 2018 at 1:40PM

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What would be an impressive growth rate for any other company is actually a slowdown for Shopify.

Shopify (SHOP 3.52%) had a lot to live up to going into its second-quarter financial report. The e-commerce platform provider's stock had already gained 46% so far this year, nearly 10 times the gain of the S&P 500. In the first quarter, year-over-year revenue growth fell below the 70% mark for the first time since the company went public in mid-2015. But while Shopify continued its impressive track record of growth, it came at a slower rate than previous quarters and left some investors disappointed. 

For the second quarter, Shopify reported revenue of $245 million, up 62% year over year, above analysts' consensus estimate of $234.64, while also exceeding the high end of management's forecast. The company also reported adjusted earnings per share of $0.02, compared to an adjusted loss per share of $0.01 in the prior-year quarter; this was better than the loss per share of $0.03 analysts had anticipated.

Shopify's second quarter: The raw numbers


Q2 2018

Q2 2017

Year-Over-Year Change


$245 million

$152 million


Operating income (loss)

($30.8 million)

($15.9 million)


Net income (loss)

($24 million)

($14 million)


Earnings (loss) per share




Data source: Shopify second-quarter 2018 financial release.

The breakdown

Growth was still strong across the company's business segments, though it was moderately slower than investors had become accustomed to. Subscription solutions revenue of $110.7 million grew 55% year over year, driven by increases in the company's monthly recurring revenue (MRR). Merchant solutions, which includes payments and shipping, jumped an even more impressive 68% compared to the year-ago quarter, to $134.2 million, on higher gross merchandise volume (GMV).

MRR for the quarter increased to $35.3 million, up 49% compared to the prior-year quarter, driven by new merchants joining the Shopify platform. Shopify Plus, the company's solution designed specifically for enterprise-level businesses, contributed $8.1 million, or 23% of MRR, up from 18% in the prior-year quarter. Recurring revenue is among the most important metrics for any subscription-based business, and MRR accounted for 14% of the company's total revenue during the quarter.

GMV -- the price of the total items sold by merchants on the platform -- jumped to $9.1 billion, up 56% year over year. Gross payments volume, the amount of payments processed by Shopify, climbed to $3.6 billion, or 40% of GMV, up from 38% of GMV in the prior-year quarter.

Operating expenses ballooned to $167 million, up 63% year over year; they are growing faster than revenue, as the company continues to invest in its international expansion. While Shopify is available in about 175 countries worldwide, the majority of its business is still conducted in North America, and the company is working to expand its entire ecosystem of services to merchants around the globe.

The Shopify app, shown on a laptop, tablet, and smartphone

Image source: Shopify.

Are investors overreacting?

For the third quarter, Shopify is forecasting revenue in a range of $253 million to $257 million, which would represent year-over-year growth of between 47% and 50%. The company is guiding for a GAAP operating loss in a range of $40 million and $42 million, significantly worse than the $12.7 million Shopify lost in the same quarter last year.

For their part, analysts' consensus estimates are calling for revenue of $252.94 million, for growth of 47.5%, and adjusted earnings per share of $0.02.

Investors may also be reacting to the revelation that Shopify may be issuing additional shares. In a shelf registration filed with the Securities and Exchange Commission, Shopify said it could issue as much as $5 million in new securities. During the conference call, management sought to downplay the move, saying it was merely a replacement for an existing document that was due to expire; they said the filing would allow the company to maintain its financial flexibility over the coming two years -- and that they currently had no plans to issue new shares. Shopify has a history of issuing shares to raise cash, and this filing, combined with the slowing growth, was enough to send some investors to the sidelines.

It's been more than three years since Shopify's public debut, and investors had to know that the days of heady year-over-year growth would eventually come to an end. Still, while growth may be slowing, I think Shopify still has a long runway ahead, and will reward forward-thinking investors who stay the course.

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