As earnings season continues to unfold, many tech companies are reporting earnings this week. Two companies' earnings reports that will be worth watching are Shopify (SHOP -1.16%) and Fastly (FSLY 1.70%). Both tech companies have seen their stocks fall sharply this year as many richly valued tech stocks have seen their valuation multiples compressed. Fastly and Shopify shares, for instance, are down 20% and 38%, respectively.
Here's a preview of some key items to watch when both companies report earnings on Wednesday.
In Shopify's third quarter, the e-commerce platform specialist's revenue grew 46% year over year. While this is rapid in absolute terms, it's a meaningful slowdown from the company's 57% growth in the second quarter of 2021. It wouldn't be surprising to see a further deceleration in Q4, as the company is up against a tough year-ago period in which revenue increased 94% year over year.
Looking beyond Shopify's revenue growth, another important area to check on is the company's momentum in retail gross merchandise volume (GMV). Shopify said in its third-quarter earnings call that its retail GMV was at an all-time quarterly high, helped by the ongoing adoption of its point-of-sale hardware and software. Will this important subset of Shopify's business continue to grow as a percentage of total sales, diversifying Shopify away from GMV that is largely dependent on e-commerce?
Edge computing company Fastly saw a reacceleration in its revenue growth in Q3 as it continues to deal with a significant outage that occurred in the second quarter and led to a more cautious usage on its platform from some of its customers. After revenue grew 14% year over year in Q2, this top-line growth accelerated to 23% growth in Q3.
"I am pleased to report that our top customers have returned traffic and continue to ramp following significant stability and resilience work by our infrastructure and engineering teams," said Fastly CEO Joshua Bixby in the company's third-quarter shareholder letter. "This return reinforces the mission-critical nature of our services and ever-growing demand for our differentiated performance, security, and edge compute products."
Despite Fastly's accelerated growth in Q3, management was cautious about its growth prospects in Q4. The company guided for revenue to increase just 8% to 12% year over year during the period. This slowed growth is in part due to the company lapping its 2020 acquisition of Signal Sciences for the first time. Management said Signal Sciences accounted for 11% of its revenue in Q3. Signal Sciences, therefore, played a meaningful role in the company's 23% Q3 growth rate -- so a slowdown in Q4 as the company laps the acquisition of this business for the first time makes sense.
Shopify is scheduled to report its fourth-quarter results before market open on Wednesday, and Fastly is set to report its results after market close on the same day.
Editor's note: The year-to-date percentage drops of Fastly and Shopify have been corrected.