Shopify Stock Jumps on Strong Earnings Report
Shares of Shopify increased by almost 3% during pre-market trading today following the release of a financial report that significantly surpassed Wall Street’s projections.
The e-commerce platform provider, headquartered in Ottawa, announced earnings of $133.2 million, equating to $1.13 per share, for the third quarter. This represents a substantial improvement compared to the $33.6 million loss, or 29 cents per share, reported during the same timeframe last year. Financial analysts who cover the company had anticipated earnings per share of 52 cents.
The company’s overall performance was strong, in part due to the decline in traditional brick-and-mortar retail sales. Restrictions implemented to control the spread of the coronavirus, such as limitations on store occupancy, have reduced foot traffic.
Shopify reported revenue of $767.4 million for the quarter, a 96% increase compared to the same period last year. This also exceeded analyst predictions of approximately $658 million. Operating income also saw improvement, reaching $50 million, or 7% of revenue, compared to a loss of nearly $36 million during the year-ago quarter. Adjusted operating income totaled nearly $131 million.
“The increasing trend toward digital commerce, accelerated by COVID-19, continues as more consumers purchase goods online and entrepreneurs work to fulfill that demand,” stated Harley Finkelstein, Shopify’s president, in a company announcement. “Entrepreneurs are vital to rebuilding economies globally, making it crucial for Shopify to continually innovate and provide merchants with the essential tools they need to thrive in a retail landscape that emphasizes minimal physical contact.”
“Shopify’s exceptional third-quarter results demonstrate the strength and entrepreneurial drive of our merchants,” added Amy Shapero, Shopify’s CFO. “An increasing number of entrepreneurs are joining Shopify to quickly and easily launch their ideas. We are dedicated to enhancing our global commerce operating system to simplify the process of getting online, increasing visibility, and efficiently delivering products to customers, all while providing a positive shopping experience.”
Shopify’s performance is noteworthy not only for its own revenue growth, but also for what it indicates about the health of direct-to-consumer retail businesses – many of which have secured substantial investment from venture capital firms.
Examining the company’s merchant solutions revenue, which rose by 132% to $522.1 million, suggests that these direct-to-consumer companies are experiencing strong financial performance. Gross merchandise volume, the metric used to calculate Shopify’s merchant solutions revenue, reached $30 billion, an increase of $16.1 billion over the previous year.
Shopify currently holds a significant cash reserve of $6.12 billion in cash and equivalents, up from $2.46 billion at the beginning of the year.
Beyond its financial results, Shopify is actively working to broaden its reach in social commerce through a recently established partnership with TikTok, which was announced yesterday. This collaboration is intended to allow more Shopify sellers to connect with TikTok’s user base by marketing directly on the platform using tools integrated with Shopify’s interface, according to both companies.