When governments worldwide began issuing shelter-in-place orders at the onset of the pandemic, some businesses realized they urgently needed to develop an online presence. They had no other choice if they wanted to continue making sales. Shopify (NYSE:SHOP) benefited significantly from being there to help businesses transition their operations online.
For Shopify investors, the good news is that many enterprises that developed an online presence during the start of the coronavirus pandemic will continue to maintain that presence even after the pandemic has run its course. And one of the long-lasting remnants of the coronavirus era might be the rapid adoption of the various forms of buying online and picking up curbside or in-store.
Shopify reports third-quarter results on Thursday, Oct. 29. Here are three critical metrics investors will be watching.
Shopify is hoping revenue growth continues even as businesses reopen
The first thing investors will be watching is overall revenue growth. This figure soared 97% in the most recent quarter as retailers quickly shifted operations from brick-and-mortar to digital. The company is firing on all cylinders, as both new store signups and sales at existing stores are increasing. Since businesses worldwide are starting to reopen, it would not be surprising if revenue growth decelerated for Shopify in the current quarter.
Second, shareholders will want to make note of the monthly recurring revenue (MRR) figure, which increased by 21% in the most recent quarter. Shopify extended its free trial offer to 90 days (up from 30 days), and the company mentioned that many new businesses that signed up with Shopify during the pandemic were still in their free trial period when it last reported. The MRR figure will shed light on the proportion of new sign-ups that turn into longer-term clients.
Finally, those interested in Shopify will want to look at its operating income, which was $0.3 million in the most recent quarter. If revenue continues to expand, operating profits will likely be positive again in the current quarter. Additionally, the company took a one-time impairment charge of $31.6 million in the second quarter due to making remote working a permanent policy. That decision will reduce office expenses in the future and might increase profitability in the long run.
What this means for investors
Because of the heightened uncertainty surrounding the pandemic, the company did not provide a forecast for the upcoming earnings report. However, analysts estimate Shopify will report revenue of $653 million and earnings per share of $0.51.
Shopify has $4 billion of cash and marketable securities and soaring demand for its products and services. Its fellow e-commerce companies Amazon and eBay are also experiencing increasing sales as a result of COVID-19. That being said, shares of this tech stock are already up 157% year to date. Investors should be prepared for a pullback in the price if it misses analyst estimates or if management gives pessimistic guidance. And if that scenario plays out, it might be an opportunity to buy a dip in this high-flying tech stock.