Shopify (SHOP 4.90%) is scheduled to report fiscal 2022 second-quarter earnings on July 27. The e-commerce enabler is experiencing slower sales growth as people shift spending toward away-from-home experiences like restaurants, travel, and theme parks.
Still, investors will want to hear about how the acquisition of Deliverr is helping expand Shopify's fulfillment network. Additionally, those interested in Shopify will want to know if management is sticking with its investment plans despite changing consumer behavior.
1. The economic reopening is a headwind for Shopify
Shopify thrived at the pandemic's onset when governments mandated non-essential businesses to close. That forced consumers online; if merchants wanted to make sales, they needed an online presence. Shopify makes money from entrepreneurs who sign up for a monthly subscription to its online services, and it makes money by taking a percentage of sales transacted on its platform.
It's no surprise that the economic reopening would be a headwind. People are shifting their spending to things they sorely missed during the early stages of the pandemic when in-restaurant dining was prohibited, movie theaters were closed, and travel restrictions were abounding. In its most recent quarter, which ended on March 31, Shopify's revenue grew by 22% from the same quarter in the year prior. That's a solid growth rate, to be sure, but Shopify has managed annual revenue growth of at least 47% for the previous nine years.
Management is hopeful that growth in the second half of the fiscal year 2022 will be higher than in the first half.
2. Acquiring Deliverr
Shopify acquired logistics company Deliverr in a cash and stock transaction valued at $2.1 billion. Shopify aims to expand its fulfillment services offering to merchants on its platform. The acquisition will help on this front, as it will more than double the size of Shopify's fulfillment team. Deliverr's asset-light network of warehouses and last mile partners will help Shopify merchants offer customers faster shipping with more accurate delivery dates.
In the second-quarter earnings release, investors will want to hear about the integration thus far, merchant adoption of fulfillment services, and perhaps whether rising inflation is adversely affecting this initiative.
3. Reinvesting in the business
Management informed investors that it would be reinvesting all of the gross profits the business earns in 2022 into growth opportunities, "including the expansion of our services to more merchants in more geographies, the development of new products, and the strengthening of our partner ecosystem to give independent brands of all sizes a way to build a strong, low-friction presence across the internet, in apps, and in person."
This comes just as Shopify was turning the corner, expanding profitability after years of losing money on the bottom line. Shopify reported earnings per share (EPS) of $2.59 in 2020, then $22.90 in 2021. With this strategy of reinvesting all gross profits into the business, Shopify will almost surely report a loss on the bottom line in 2022.
What this could mean for Shopify investors
Analysts on Wall Street expect Shopify to report revenues of $1.7 billion and EPS of $0.03. If the company meets the revenue projections, it will be an increase of 66.70% from the same period the year before. That's considerably above the 22% rate in the previous quarter.
SHOP PS Ratio data by YCharts
Shopify's stock is trading inexpensively at a price to sales of 10, its lowest in the last five years. It's a good time for long-term investors to scoop up shares before a rally.
