Is Shopify A Good Buy After Its Q2 Earnings Report?

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Shopify is a Canada-based multinational e-commerce platform operating across 175 countries with a customer base of around 1.75 million merchants. In return for subscription fees ranging from $29 per month for entrepreneurs to $2,000 and up for large companies, this platform enables merchants to sell their offerings across various channels like web and mobile storefronts, pop-up shops, physical retail locations, etc. along with helping them in operational processes like inventory management, order, and payment processing, shipments, and likes.

There has been a rise in push towards digitalization and Shopify is milking the scenario pretty well. Over the past three years, the company has shown a tremendous 178% annual growth in its EPS (earnings per share) while its sales have grown 63% annually. Shopify believes in sustainable growth and that is quite evident from its second-quarter financials that came out just a few days back.

Shopify’s Financial Position

Shopify had a strong second-quarter performance and the following highlights were noticed in its financials:

  • Shopify’s earnings showed more than 100% growth and the adjusted net income came at $284.6 million, or $2.24 per diluted share including gains on equity investments against the adjusted net income of $129.4 million, or $1.05 per diluted share achieved in the second quarter of 2020.

  • Shopify’s overall revenue had a 57% growth slowing down from the 110% achieved in the last quarter. The company’s subscriber base had widened further this quarter for which its revenue from Subscription Solutions was up by 70% year over year. Further, revenue from the Merchant Solutions segment also jumped by 52% as a result of the increased merchandise volume.

  • Shopify had a 40% rise in its gross merchandise volume this quarter. However, in the last quarter, the same had a 114% growth. Gross merchandise volume means the total value of all goods sold on the Shopify platform during the quarter.

  • Shopify’s adjusted operating income also improved significantly showing almost 110% growth. While an adjusted operating income of only $113.7 million or 16% of the revenue was seen a year ago, the company has achieved an adjusted operating income of $236.8 million or 21% of revenue during this quarter

  • Shopify’s cash reserves also saw some growth. The company had $7.76 billion in its cash, cash equivalents, and marketable securities, while on 31st December 2020, the cash reserve was at $6.39 billion.

Shopify’s operational highlights

The strong financial position achieved this quarter was the result of the improved operational expertise that Shopify was able to achieve this quarter. The major operational highlights noticed this quarter are:

  • Shopify is dedicated to building the future of commerce on the internet. The company’s upgraded platform Online Store 2.0 would enable merchants to express their brands more easily while the new APIs and tooling would help in unlocking rich platform features like new cart functionality, selling plans, international pricing, and local pickup.

  • Additionally, Shopify has also previewed two new toolkits: Hydrogen and Oxygen. The former would help in building custom storefronts quickly and easily while the latter would offer a fast, global, and optimized way to host these storefronts.

  • Shopify has launched integrated retail hardware with payments using its all-new POS software to retail merchants in Australia in May, enabling merchants of those regions to seamlessly bridge online and offline commerce.

  • Shopify also deployed Shop Pay Installments for all the merchants in the US region enabling them to provide their buyers with enhanced flexibility and affordability during times of checkouts. The company’s buy-now-pay-later product also has significant benefits. Some of the benefits offered are allowing merchants access to one of the largest US consumer networks using Shop Pay, or seamless checkout experience along with higher conversions and order values and low abandoned carts, or direct integration of Shop Pay Installments with merchants’ Shopify stores.

  • Shopify Capital has granted a record $363 million in merchant cash advances and loans to merchants in the US, Canada, and the UK in the second quarter of 2021. This is 137% higher than the $153 million received by US merchants last year. Additionally, Shopify Capital has reached about $2.3 billion in cumulative capital advanced since its inception in April 2016, out of which approximately $415.4 million was outstanding on June 30, 2021.

  • Shopify’s ecosystem widened further. Over the past 12 months, approximately 46,400 partners have referred a merchant to Shopify which is 53% more compared to the 30,300 that was seen last year.

Conclusion

Shopify is surely one of those stocks that one can buy and hold till the next decade. It is one of the most dependable stocks available in the market to protect one’s portfolio against upcoming economic depressions. The company also has a strong track record of growth and its underlying business is assuring to investors. While COVID-19 had created a ruckus for the business houses, it has in fact strengthened Shopify’s business. The digitalization, social media, and e-commerce trends boomed and these trends are not going to fade away anytime soon. Companies like Shopify which are in a better position to exploit these conditions will continue to remain relevant.

Though Shopify had a good run even before the pandemic hit, the best thing about the stock is that it is not resting on its past success and has big growth aspirations. The company’s second-quarter financials have also shown how successfully it has preserved its growth rate. The quarter results have ensured solid growth in its earnings with a strong balance sheet position. Moreover, even in this quarter, the company has strived to improve its platform by introducing customizable storefronts or allowing faster checkouts.

The stock may seem a bit expensive at a price-to-sales ratio of around 50, but considering how well run the company is and the long-term growth that is about to come, the price is pretty reasonable. So, adding Shopify to your portfolio today will make for a smart move.

 

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