Shopify stock soars on better-than-expected earnings, lower ...
Shopify Inc.’s stock price jumped Wednesday after the company posted stronger-than-expected second-quarter revenues and profits as well as a solid forecast for its next quarter.
The Ottawa e-commerce software giant generated US$2.045-biillion in revenue, up 22 per cent year-over-year when factoring out the logistics business it sold in 2023. Revenue from both subscription fees for merchants to use its platform and merchant fees for other services including processing payments both exceeded analyst expectations, coming in at US$563-million and US$1.482-million, respectively.
The company’s gross profit of US$1.045-billion and US$333-million free cash flow were also ahead of expectations. Gross merchant volume, representing the total amount of business flowing through its platform, was US$67.2-billion, up 22 per cent. Analyst had expected that number to only reach US$65.7-billion.
“Our Q2 results make it clear: Shopify is rapidly strengthening its position as a leading enabler of global commerce and entrepreneurship,” president Harley Finkelstein said in a release.
Shopify’s stock opened up 18.4 per cent on the Toronto Stock Exchange and kept climbing to a 21 per cent-plus gain in early morning trading. Its shares had experienced a rocky few days as global economic concerns hit stocks, particularly in technology, and are still down by about 15 per cent year to date.
The company’s stock had swooned by close to 20 per cent in May for its largest single-day loss in its nine years as a public company when Shopify warned operating expenses would climb from the first quarter by an amount in the low to mid-single digit percentage range. But in Wednesday’s report, operating expenses actually fell by nearly 8 per cent from the first quarter, to US$804-million, while operating expenses as a share of revenue came in at 39.3 per cent, down from 43.5 per cent.
Shopify, Canada’s largest technology company by market capitalization, forecast its third quarter revenues will rise by an amount in the low to mid 20-per-cent range, compared to an analyst consensus forecast of about 20 per cent, while it again warned operating expenses would rise from the prior quarter, reaching 41 per cent to 42 per cent of revenues. But the company also forecast its gross margin would climb by 50 basis points over second-quarter levels, after warning they would dip by 50 basis points last quarter. The gross margin rate actually dipped by just 30 basis points in the second quarter, reaching 51.1 per cent of revenues.
Shopify “continues to perform at a high level when compared to global peers, and we think a positive reaction is warranted,” ATB Capital Markets analyst Martin Toner said in a note. “We believe the Q2 results and guidance should give investors confidence that Shopify’s growth story is intact” and that its “world-class large cap growth story is undervalued.”
National Bank Financial analyst Richard Tse said in an e-mail: “Both the results and outlook point to growing operating leverage and in a market that’s asking for efficient capital allocation, I think that will be well received.”
Shopify posted a net profit of US$171-million, or 13 cents per share, which was weighted down in part by the fluctuating value of its equity holdings in three other companies that sell services to its merchants, Global-E Online Ltd., Affirm Holdings, Inc. and Klaviyo, Inc. All three of their share prices were lower at the end of the second quarter than three months prior.
However, analysts pay closer attention to the company’s adjusted net income, which factors out stock based compensation, the equity loss on investments and other elements. That came in at US$345-million, or US26 cents per share, well ahead of the 21 cents analysts had forecast.
More to come
