Shopify SHOP reported third-quarter 2024 non-GAAP earnings of 36 cents per share, beating the Zacks Consensus Estimate by 33.33%. SHOP reported earnings of 24 cents per share in the year-ago quarter.
SHOP’s earnings beat the Zacks Consensus Estimate in all the trailing four quarters, the average earnings surprise being 24.50%.
Find the latest EPS estimates and surprises on Zacks Earnings Calendar.
Revenues of $2.16 billion surpassed the Zacks Consensus Estimate by 2.59%. The top line soared 26.1% year over year.
Following third-quarter 2024 results, SHOP shares increased 21.04% to close at $108.92 on Tuesday. Shopify shares have appreciated 39.8% year to date, outperforming the Zacks Computer and Technology sector’s return of 30%.
Shopify Inc. Price, Consensus and EPS Surprise
Shopify Inc. price-consensus-eps-surprise-chart | Shopify Inc. Quote
SHOP shares are expected to further benefit from strengthening partnerships. In the third-quarter, Shopify became the first commerce integration partner for Roblox RBLX. Alphabet GOOGL division YouTube expanded its partnership with Shopify to bring more brands for its YouTube Shopping affiliate program.
Shopify has also diversified its Payments product offerings through an expanded partnership with PayPal PYPL.
YTD Performance
SHOP’s Top Line Rides on Growing Merchant Base
Shopify is benefiting from strong growth in its merchant base. Merchant-friendly tools like Shop Pay, Shopify Payments, Shopify Collective, Shopify Audiences, Shopify Capital and Shop Cash offers are helping it win new merchants amid a challenging economic environment. Its continued efforts to streamline operations have been attracting both new, smaller merchants and established, large brands to the platform.
Merchant solutions revenues in the third quarter were $1.55 billion, comprising 71.8% of Shopify’s total revenues. On a year-over-year basis, merchant revenues increased 26.4%.
Shopify has been investing in developing the best solutions for modern e-commerce. Product offerings include Shop Pay, Bill Pay, Tax Platform, Collective and the Marketplace Connect app. Integration of AI through Shopify Magic across products and workflows is helping merchants expand their footprint. Shopify Checkout is helping merchants offer secure and seamless checkout options for customers.
Subscription solutions revenues in the third quarter were $610 million, comprising 28.2% of Shopify’s total revenues. On a year-over-year basis, subscription solutions revenues increased 25.5%. The growth was driven by an increase in the number of merchants on SHOP’s platform.
Gross Merchandise Volume (GMV) in the third quarter was $69.7 billion and increased 24% year over year. The growth was driven primarily by the increase in offline locations. The reported quarter saw major retailers like Orlebar Brown, AKIRA, and Billy Reid adopt SHOP’s point-of-Sale solution. In Canada, women’s fashion retailer Laura migrated the point-of-sale systems of their over 130 stores to Shopify.
In the third quarter of 2024, Shopify also signed enterprise-level brands like Reebok, Lions Gate Entertainment and Hanes.
Monthly Recurring Revenue (MRR) in the third quarter was $175 million and increased 27.7% on a year-over-year basis.
SHOP’s Operating Expenses Rise Y/Y
In the third quarter of 2024, total operating expenses were $835 million, up 7.2% from the prior-year quarter. As a percentage of revenues, the figure contracted to 38.6% from 45.4% in the year-ago quarter.
Sales & Marketing (S&M) expenses increased 12.2% year over year to $331 million. As a percentage of revenues, S&M expenses decreased 190 basis points (bps) year over year to 15.3%
Research & Development (R&D) expenses increased 6.1% year over year to $332 million. As a percentage of revenues, R&D expenses decreased 290 bps year over year to 15.4%.
General & Administrative (G&A) expenses decreased 16.8% year over year to $114 million. As a percentage of revenues, G&A expenses decreased 2.7% to 5.3%.
Consequently, SHOP reported an operating income of $283 million compared with an operating income of $122 million reported in the prior-year quarter.
SHOP’s Balance Sheet Details
As of Sept. 30, 2024, cash and cash equivalents (including marketable securities) totaled $4.9 billion, which decreased from $5.02 billion as of June 30, 2024.
Long-term debt stood at $1.12 billion, unchanged from the figure reported at the end of the prior quarter.
SHOP’s Q4 Guidance Positive
For the fourth quarter of 2024, Shopify expects revenues to grow at a mid-to-high twenties percentage rate on a year-over-year basis.
Shopify expects GAAP operating expenses as a percentage of revenues to be 32% - 33%.
The Zacks Consensus Estimate for fourth-quarter 2024 revenues is pegged at $2.62 billion, indicating year-over-year growth of 22.17%. The consensus mark for earnings is pegged at 38 cents per share, unchanged over the past 90 days and suggesting 11.76% growth year over year.
The Zacks Consensus Estimate for SHOP’s 2024 revenues is pegged at $8.63 billion, indicating year-over-year growth of 22.18%. The consensus mark for earnings is pegged at $1.12 per share, unchanged over the past 60 days and indicating 51.35% growth year over year.
SHOP Shares Trading at a Premium
Shopify’s Value Score of F suggests a stretched valuation at the moment.
Currently, SHOP is trading at a premium, with a forward 12-month Price/Sales of 13.92X compared with the sub-industry’s 6.37X.
Price/Sales Ratio
Conclusion
Shopify is benefiting from strong growth in its merchant base and expanding its international footprint. Its focus on improving enterprise footprint is a key catalyst. Strong growth prospects justify a premium valuation.
Shopify carries a Zacks Rank #2 (Buy) at present, suggesting that it may be wise to enter the stock right now. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Zacks Investment Research
US
VN
TW
