Investors in Shopify (NYSE:SHOP) had high hopes going into its second-quarter financial report. With a history of conservative guidance, chances were high that the company would have another surprise for investors -- and that's just what happened. The better-than-expected results released Thursday morning sent shares soaring as much as 10% before they settled back down a bit and closed the day up 7.4%.
The provider of e-commerce tools for retailers reported revenue of $362 million, up 48% year over year. That easily surpassed analysts' consensus estimates of $350.5 million and the high end of management's guidance, which topped out at $350 million. This resulted in adjusted net income of $15.8 million and adjusted earnings per share of $0.14, soaring past expectations for $0.03.
Shopify produced strong growth in both of its operating segments.
Revenue from subscription solutions grew to $153 million, up 38% year over year, on the back of impressive monthly recurring revenue (MRR). That, in turn, was driven by the large number of merchants that joined the company's platform this quarter.
The merchant solutions segment -- which contributes the lion's share of Shopify's growth -- was even more robust, hitting $208.9 million, up 56% versus the prior-year quarter. Much of this growth was due to large increases in Shopify Capital and Shopify Shipping.
MRR, which is the backbone of any subscription-based business, continued its impressive gains, swelling to $47.1 million (up 34% year over year). It now accounts for 13% of Shopify's total revenue. Shopify Plus, the company's enterprise-level platform, contributed $12.4 million (26% of MRR and up from 23% in the year-ago quarter).
Gross merchandise volume (GMV), which measures the total value of goods sold using Shopify's e-commerce tools, grew to $13.8 billion -- up an incredible 51% year over year. Within GMV, the gross payments volume (the dollar value of the payments processed on the platform) accounted for $5.8 billion (or 42%) of GMV. Compare that with payment volume of $3.6 billion (40% of GMV) for this time last year.
Gross profit grew even faster than revenue, totaling $204.8 million, up 50% year over year. New partner pricing terms were cited as a contributor to that increase.
Shopify's strategic decision to concentrate on growth over profit continued. The company produced an operating loss of $39.6 million versus a loss of $30.8 million in the prior-year quarter. The company's net quarterly loss was $28.7 million, or $0.26 per share, more than the loss of $24 million, or $0.23 per share, in the year-ago quarter.
New tools equal more opportunities
At its Shopify Unite conference in mid-July, the company introduced a host of updates to existing offerings and new tools to help merchants succeed in e-commerce. The company overhauled Shopify Plus, introduced next-generation point-of-sale software, enhanced its customer-engagement tools, and added 11 new languages to its platform.
Potentially the most important announcement, however, was the introduction of the Shopify Fulfillment Network. Similar to a program offered by Amazon.com, Shopify is debuting a network of fulfillment centers and smart inventory-management tools to help merchants ensure fast and cost-effective delivery to customers.
On the earnings conference call, COO Harley Finkelstein said the company was pleased with the early interest from Shopify retailers in the new offerings and that it had "exceeded our expectations."
"No other company is as well-positioned as Shopify to offer this by leveraging our scale with machine learning and demand forecasting, smart inventory allocation across warehouses, and intelligent order routing," Finkelstein explained. He said the company may accelerate its spending on the program to open up early access to more businesses than originally intended.
What the future could hold
Early merchant feedback on the updates has been so positive that Shopify increased its full-year guidance. It is now forecasting revenue in a range of $1.51 billion to $1.53 billion, up from its previous range of $1.48 billion to $1.50 billion. Adjusted operating income is now being forecast between $20 million and $30 million, unchanged from its previous guidance.
For the third quarter, Shopify expects revenue in a range of $377 million to $382 million and adjusted operating income between breakeven and $3 million. Analysts' consensus estimates were calling for revenue of about $374 million and a loss per share of $0.02, so Shopify surprised investors with its strong forecast.
While Shopify's year-over-year revenue growth has been slowing, the company's better-than-expected results and bullish guidance show that substantial opportunities remain and that Shopify is finding new ways to capitalize on them.