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Shopify Q3 Earnings Show Strong Revenue Growth

By Daniel Sparks - Oct 29, 2019 at 10:25AM

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Management lifts its full-year outlook for revenue and adjusted operating income.

Shopify's ( SHOP -2.57% ) strong growth continued in Q3. The e-commerce specialist's top line soared, beating analyst estimates. This was propelled by double-digit growth in both subscription solutions and merchant solutions revenue as the company surpassed 1 million merchants on its platform during the quarter.

"Our strong results in the quarter were driven in part by the success of our international expansion, which is just one of the many ways we are investing in the platform," said CFO Amy Shapero in the company's third-quarter update. 

But Shopify continued to lose money as operating expenses rose sharply.

Shopify e-commerce platform on a smartphone, laptop, and tablet

Three versions of Shopify's e-commerce platform. Image source: Shopify.

Shopify's financial results

The tech company's third-quarter revenue increased 45% year over year to $390.6 million, well ahead of guidance for revenue between $377 million and $382 million. 

The top line consisted of $225.0 million of merchant solutions revenue and $165.6 million of subscription solutions revenue. These segments grew by 50% and 37% year over year, respectively.

The portion of subscription solutions revenue that is monthly recurring revenue (MRR) increased 34% year over year to $37.9 million. This increase was primarily driven by growth in the number of merchants joining Shopify's platform.

Shopify Plus -- the subscription plan for high-volume merchants -- accounted for 27% of MRR, up from 24% in the third quarter of 2018.

Though the company saw robust revenue growth, rapidly rising operating expenses weighed on profitability. Operating expenses rose 39% year over year, from $181 million in the year-ago period to $252 million. The operating loss widened from $31.4 million in the third quarter of 2018 to $35.7 million in the third quarter or 2019.

Shopify's non-GAAP (adjusted) loss per share for the period was $0.29. This compares with adjusted net income of $0.05 per share in the year-ago quarter.

Raising the revenue forecast

With another quarter of strong growth behind it, management lifted its outlook for the full year. It now expects full-year revenue between $1.545 billion and $1.555 billion. Previously, 2019 revenue was expected to be between $1.51 billion and $1.53 billion.

The company also now forecasts adjusted operating income to be between $27 million and $37 million -- well ahead of its previous guidance between $20 million and $30 million.

For its fourth quarter, management guided for revenue between $472 million and $482 million -- ahead of analysts' average forecast of $470.6 million. The midpoint of this guidance range implies 39% year-over-year revenue growth.

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