Shopify is well-positioned, this analyst says

Canadian e-commerce giant Shopify (Shopify Stock Quote, Charts, News, Analysts, Financials TSX:SHOP) missed analysts’ expectations in its latest earnings this week, but investors needn’t worry, says Jefferies analyst Samad Samana, who claims the company is still set up superbly to benefit from the still ongoing e-commerce revolution.

Shopify’s share price rose a full seven per cent on Thursday as the market reacted to the company’s third quarter 2021 financials which surprisingly featured a few misses, a rarity for a company that for years now has surpassed expectations quarter after quarter.

Shopify hit $1.12 billion in revenue, up a full 46 per cent year-over-year, and generated adjusted earnings of $0.81 per share compared to $1.13 per share a year earlier. Analysts had on average been expecting $1.15 billion in revenue and adjusted EPS of $1.23 per share. (All figures in US dollars.)

The company’s gross merchandise volume (GMV) was up 35 per cent from a year earlier to $41.8 billion and its operating loss for the Q3 was $4.1 million compared to $50.6 million a year ago.

“It took 15 years for our merchants to get to $200 billion in cumulative GMV and just 16 months to double that to $400 billion,” said Harley Finkelstein, Shopify’s President in a press release. “Our merchants’ GMV remained strong in Q3. As the share of GMV from offline expanded within our total GMV, it is clear that entrepreneurs are embracing a future in which retail happens everywhere. Shopify is making it easier for more merchants worldwide to build direct and authentic relationships with their customers, in creative ways that work best for them.”

On the rise in share price even with SHOP’s misses, Samana said it seems to have reflected a sense of relief on the market’s part on the magnitude of the slowdown in growth arising at the tail end of the pandemic, as government stimulus peters out and more bricks and mortar stores reopen, which could be said to pose a challenge to the online offerings of Shopify’s merchants.  But Samana said Shopify’s solid revenue growth at 35 per cent could have allayed some of those fears.

“I think the key takeaway from all of this is is that the trends that emerged out of the pandemic — online shopping for groceries, curbside pickup for small and medium-sized businesses — these are structural changes, and they change the way that consumers purchase goods, whether it’s in store or online,” said Samana, speaking on BNN Bloomberg on Thursday. 

“Much more transaction volume has moved to e-commerce, and so I think for Shopify, they’re a big winner from a structural perspective because as more and more merchants try and capture that online GMV digital transactions, we think Shopify is one of the best-positioned companies to help facilitate that for merchants of all sizes,” he said.

Shopify repeated its claims voiced in earlier quarters that growth now over the fourth quarter and for the full 2021 year won’t likely match the accelerated growth of 2020 which drove shoppers and business owners online in unprecedented numbers.

“We continue to expect the fourth quarter to contribute the largest share of full-year revenue, and that the revenue spread will be more evenly distributed across the four quarters than it has been historically,” Shopify said in a press release. 

“While the commerce market, both online and offline, may be impacted by supply chain delays or increased costs for materials, labor, shipping or advertising in the fourth quarter, and spending on Black Friday Cyber Monday may be pulled forward, we expect our GMV in the fourth quarter to continue to grow substantially faster than the commerce market,” the company said.

On Shopify’s word of caution on potential supply chain issues that might impact business over the crucial holiday season, Samana said the company was wise to be conservative in its outlook but that the potential hold-ups related to labour shortages, container shipments and supply chains likely won’t be as impactful in the long run.

“I think it was smart of the company to go ahead and caution that that’s a potential factor to think about, [but] I think the consumer will adjust. You’re already hearing about consumers that are making their purchases earlier for the holiday season,” Samana said. 

“It may gum up some of the works but I think generally speaking the demand side is strong enough to make up for that and I think you’re going to see people spreading out what would be normally maybe a more concentrated holiday season into a longer period of time,” he said.

“You had this fear heading into Shopify’s [quarterly] results, and they were a little bit soft but on an absolute level they’re still very, very strong. And I think by going ahead and setting expectations at a reasonable level, I think they’re positioning themselves to continue to surprise to the upside actually and get back on track,” Samana said.