Shopify (SHOP) Down 29.1% Since Last Earnings Report: Can It Rebound?

It has been about a month since the last earnings report for Shopify (SHOP). Shares have lost about 29.1% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Shopify due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

Shopify Q4 Earnings Surpass Estimates

Shopify Inc. reported fourth-quarter 2019 adjusted earnings of 43 cents per share, surpassing the Zacks Consensus Estimate by almost 87%. Moreover, the figure improved 59.3% on a year-over-year basis.

Total revenues surged 47% from the year-ago quarter to $505.2 million, outpacing the Zacks Consensus Estimate of $482 million. The figure also fared better than management’s guided range of $472-$482 million.

The top line benefited from an improving merchant base, rapid expansion in international markets and strong holiday sales in Black Friday/Cyber Monday period. The company continues to launch a number of merchant-friendly applications to meet the requirements of a dynamic retail environment, in turn strengthening merchant base.

Quarter in Detail

Subscription Solutions revenues (36.3% of total revenues) surged 37% to $183.2 million driven by persistent growth in Monthly Recurring Revenue (MRR) due to the addition of several new merchants.

As of Dec 31, 2019, MRR was $53.9 million, up 32% from the year-ago quarter. Shopify Plus accounted for $14.6 million, representing 27% of MRR compared with 25% in the quarter ended Dec 31, 2018.

Merchant Solutions revenues (63.7%) advanced 53% to $322 million, primarily on account of growth in Gross Merchandise Volume (GMV), which improved 47% from the year-ago quarter to $20.6 billion.

Shopify Capital advanced $115.9 million cash to merchants in the reported quarter, surging 61% compared with $71.8 million in the year-ago quarter. Notably, since the launch of Shopify Capital, cumulative merchant cash advances have improved to $885 million, out of which $150 million was outstanding as of Dec 31, 2019.

Shopify Shipping witnessed robust adoption in the fourth quarter. The offering is being leveraged by 45% of total eligible merchants across the United States and Canada.

Gross Payments Volume (GPV) came in at $8.9 billion, accounting for 43% of GMV processed in the fourth quarter, up from $5.8 billion (41%) in the prior-year quarter.

Purchases from merchants’ stores especially from mobile devices witnessed 80% of traffic and garnered 68% of orders for the quarter ended Dec 31, 2019, up from 78% and 66% reported in the year-ago quarter, respectively.

Operating Details

Non-GAAP gross profit (adjusted for amortization of acquired intangibles) surged 43.7% year over year to $269.9 million. This can be attributed to robust performance of Shopify Plus and Shopify Capital.

Non-GAAP gross margin contracted 200 basis points (bps) from the year-ago quarter to 53%.

Shopify reported adjusted operating income of $28.5 million, up 33.1% year over year. Adjusted operating margin remained flat on a year-over-year basis at 6%.

Balance Sheet & Cash Flow

As of Dec 31, 2019, Shopify ended the reported quarter with cash, cash equivalents and marketable securities balance of $2.455 billion compared with $2.667 billion as of Sep 30, 2019.

The company generated cash from operations of $70.6 million during the year ended Dec 31, 2019, compared with $9.3 million as of Dec 31, 2018.

Guidance

For first-quarter 2020, Shopify projects revenues in the range of $440-$446 million. In the first quarter, the company anticipates adjusted operating loss to be in the range of $30 to $34 million.

For full-year 2020, Shopify projects revenues in the range of $2.13-$2.16 billion. Shopify anticipates adjusted operating loss for fiscal 2019 to be in the range of $0-$20 million.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended downward during the past month. The consensus estimate has shifted -132.27% due to these changes.

VGM Scores

At this time, Shopify has a great Growth Score of A, though it is lagging a lot on the Momentum Score front with a C. However, the stock was allocated a grade of F on the value side, putting it in the lowest quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise Shopify has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.