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October 29, 2019

Shopify (TSE:SHOP) Files Third Quarter Earnings Miss

Disclaimer: The writer of this article may have positions in the securities mentioned in this article. The fact they hold positions in securities has had no impact on the production of this article

By Dan Kent

October 29, 2019

For the first time since its 2015 IPO, Shopify (TSX:SHOP) filed third quarter results that missed the mark in terms of earnings. The company reported a loss of $0.29 per share when only $0.11 was expected. One important thing to keep in mind, the loss was primarily due to a one-time tax provision. Lets take a deeper look at how the high flying Canadian stock did in the third quarter.

Shopify (TSX:SHOP) third quarter snapshot

**All financials are compared year over year

Shopify is still seeing revenue growth in the near 50% range, as the company reported revenue of $390.6 million, which is 45% higher than one year ago today. Over the same time frame, Shopify increased MRR (Monthly Recurring Revenue) by 34% and its Subscription Solution revenue grew 37% to $165.6 million.

Gross profit is up 45% to sit at $216.7 million and gross merchandise volume increased 48%. The company is growing its cash on hand significantly, and reports that it has $2.67 billion in cash, cash equivalents and marketable securities. This is an increase of nearly 36%.

Shopify saw its merchant base grow to over one million in the quarter, and announced the availability for merchants in the United States to start selling CBD products on its platform. The company is also making strides to reducing its environmental impact, as it launched the Shopify Sustainability Fund, which will contribute at minimum $5 million annually to reducing its overall carbon footprint.

The company lost $72.8 million in the quarter compared to $23.2 million in the same quarter last year, but like I said above, its important to keep in mind that this included a one-time tax provision in the form of a capital gain of $48.3 million.

Outlook moving forward for Shopify

Shopify expects to post revenue of $1.55 billion in 2019, which would be a 44.8% increase compared to 2018’s revenue of $1.07 billion. This is a boost in previous guidances in which the company expected to post yearly revenue between $1.51 and $1.53 billion. In the fourth quarter, the company expects revenue of $472-482 million, which is also ahead of its previous expectations of $470.6 million.

The company is continually developing better ways to serve merchants internationally, and is reflected in its ability to grow recurring revenue, which is one of the most important things to take away from this quarter.

For shareholders, Shopify continues to provide excellent growth moving forward, and I’d expect them to keep doing so. The stock is only down about 1.3% at the time of writing, primarily due to the fact that the offset in earnings was due to the one-time expense.

The company is still expensive, make no doubt about it. Trading at nearly 37 times sales and 21 times book value, there is a significant amount of growth priced into this stock already. Investors looking for a dip this morning to buy in may be disappointed, as investor confidence remains high.

**Daniel Kent is long SHOP.TO

 

 

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Dan Kent


An active dividend and growth investor, Dan has been involved with the website since its inception. Dan is primarily a researcher and writer here at Stocktrades.ca, and his pieces have numerous mentions on the Globe and Mail, Forbes, Winnipeg Free Press, and other high authority financial websites. He has become an authority figure in the Canadian finance niche, primarily due to his attention to detail and overall dedication to achieving the highest returns on his investments. Investing on his own since he was 19 years old, Dan has compiled the experience and knowledge needed to be successful in the world of self-directed investing, and is always happy to bring that knowledge to Stocktrades.ca readers and any other publications that give him the opportunity to write. Dan manages his TFSA, RRSPs and a LIRA at Questrade, and has compiled a real estate portfolio of his primary residence and 2 rental properties, all before his 30th birthday.

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