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Shopify Skyrockets to Record Highs on Q1 Earnings

By Evan Niu, CFA - May 7, 2020 at 9:15AM

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The Canadian e-commerce company saw an uptick in new merchants as COVID-19 changes consumer behavior.

E-commerce companies have been among the biggest beneficiaries of changing consumer patterns in the face of COVID-19, which has accelerated the shift away from brick-and-mortar retailers toward online purchasing. More and more merchants are scrambling to set up shop online during the novel coronavirus outbreak, which helped pave the way for Shopify's (SHOP -7.22%) first-quarter earnings beat.

Here's what investors need to know.

Shopify logo

Image source: Shopify.

Commerce adjusts to COVID-19

Revenue in the first quarter soared 47% to $470 million, crushing both the consensus estimate of $443.1 million and the company's guidance of $440 million to $446 million in sales. That all translated into adjusted net income of $22.3 million, or $0.19 per share, a surprise profit compared to the $0.18 per share in adjusted net losses that analysts were expecting. Shopify had previously suspended its guidance for full-year 2020.

Gross merchandise volume (GMV) jumped 46% to $17.4 billion, with gross payments volume (GPV) of $7.3 billion. Shopify described major shifts that are occurring after COVID-19 upended retail operations at many of its merchant customers. GMV through point-of-sale (POS) channels plunged 71% between March 13 and April 24, but retail merchants were able to replace 94% of those sales on average with online sales. There has also been a notable uptick in local customers picking up orders using curbside pickup services.

Merchants are also leaning more heavily on Shopify Capital, which provides small business loans to help merchants access capital. There is now $192 million in advances and loans outstanding, up from $150 million at the end of 2019. Monthly recurring revenue (MRR) within the subscription segment jumped 25% to $55.4 million, which the company attributed to an increase in the number of new merchants getting on the platform.

Shopify continues to invest heavily in its Shopify Fulfillment Network, which was announced last summer. Merchants are flocking to the offering, and Shopify is working with the relevant public health officials to ensure that it is implementing health and safety policies for warehouse workers during the pandemic. Subsidiary 6 River Systems also upgraded its fulfillment robot "Chuck," bolstering the automaton's workspace capacity while improving safety compliance. Shopify acquired 6 River last September for $450 million, its largest acquisition to date, in a deal reminiscent of Amazon's 2012 purchase of Kiva Systems.

The tech company also launched its Shop app last week, an aggregated e-commerce marketplace that will compete more directly with Amazon.

In terms of liquidity, Shopify has $2.4 billion in cash on the balance sheet and continues to exercise cost discipline wherever practical, while still investing in key long-term priorities. On the conference call with analysts, COO Harley Finkelstein added:

This post-COVID world is what we're building for and we have shifted accordingly. Shopify's world view has not changed. Our conviction that merchants need to be able to sell to their buyers wherever they may be remains as true today as it was a decade ago.

After withdrawing its outlook earlier, the company is not providing any forecasts for 2020 due to ongoing COVID-19-related uncertainties.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Evan Niu, CFA owns shares of Amazon and Shopify. The Motley Fool owns shares of and recommends Amazon and Shopify and recommends the following options: short January 2022 $1940 calls on Amazon and long January 2022 $1920 calls on Amazon. The Motley Fool has a disclosure policy.

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