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Shopify Inc (US) Is Still A Loser. Here’s Why Investors Love It

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Shopify Inc (NASDAQ:SHOP), (TSE:SHOP), the Canadian e-commerce giant is still losing money. Despite having hundreds of thousands of clients the website building platform is still in a pretty rough place financially. That, however, doesn’t seem to be very important to investors this morning. At time of writing shares were trading up by more than 10 percent.

That’s a massive reaction to the earnings report released on Tuesday morning. In the publication Shopify said that it lost one cent per share when one-offs were excluded. The firm’s GAAP loss came in at 15 cents per share. By consensus Wall Street had forecast a loss of 7 cents per share excluding special items.

Limiting its losses isn’t the only reason that Wall Street is a big fan of Shopify stock, however.

Shopify boosts sales

The Canadian outfit has been very forward with its shareholders. Right now all it’s doing is trying to grow its sales and subscribers as quickly as possible. That, according to the strategy, is the best way to ensure future earnings.

Shopify Inc loosk to beat Amazon.com, Inc.

One of the reasons Shopify stock jumped so dramatically on Tuesday is because it’s meeting that promise. Though the firm lost money in the quarter, it grew sales massively.

Revenue for the three months through June came in at $151.7 million. The consensus sales estimate was looking for a total of just $143.64. Those numbers aren’t absolutely huge by any means. What’s important for the firm, however, is its growth rate.

In the same three months of 2016 Shopify Inc (NASDAQ:SHOP), (TSE:SHOP) had sales totaling under $87 million. That implies a year on year growth rate of almost 75 percent.

It’s all about subscriptions

The web platform that Shopify Inc (NASDAQ:SHOP), (TSE:SHOP) operates is obviously an attractive one. It allows anyone, even those with very little technical skill, to set up and begin to operate an online store. Using a very approachable interface and tools, you can then connect your Shopify store with other sales channels, including eBay and Amazon.

Through the native platform you can manage stock and other information on all channels. By adding apps, you can highly automate a huge amount of an e-commerce business. That’s the beauty of the firm’s e-commerce mission. It makes online retail tools easy to use, and charges for access to that service.

Therefore the firm’s bottom line is all about subscriptions. How many clients can Shopify convince to pay over cash every single month? One of the most important numbers released on Tuesday was just that.

Shopify says that it now powers over half a million businesses in 175 countries around the world. The firm will be hoping that it can grow that number into the millions in the coming years. Its guidance suggests that it’s very confident indeed that revenue will keep going up.

Guidance is jumping

With more and more subscribers, Shopify is getting bullish on its own business. In this morning’s earnings report the firm guided for higher revenues in the next quarter and for the full fiscal year 2017.

According to the firm, sales in the third quarter will amount to $164-166 million. The Wall Street consensus number came in at $156.25 million. For the full year the firm’s own guidance pins sales at $642-648 million. That means a massive increase in growth over 2016.

For the last full fiscal year the firm had revenue totaling $389 million. That’s a full year on year growth rate of more than 65 percent.

Wall Street is still assuming that the firm will lose money for the full fiscal year. That’s no surprise given the firm’s expansion model. Right now any cent Shopify stock attracts is being sent right to expansion and improving customer experience.

With the big risks that the firm faces in the months and years ahead, it’s no surprise that it’s trying to take what it can before the big competition begins.

There are still big risks in Shopify stock

If this morning’s earnings report brought your attention to the Shopify story, remember that there’s still risks involved with an investment in the company. As part of the report CFO Russ Jones said that he would retire next year.

The search for a new CFO will be a key part of the firm’s future strategy formation.

Another big risk is from competition. As with anything in online retail, Wall Street is looking to Amazon.com, Inc. (NASDAQ:AMZN) to limit growth at Shopify Inc (NASDAQ:SHOP), (TSE:SHOP).

Jeff Bezos’ firm rules the roost in e-commerce, and it’s becoming a danger to even the biggest brick and mortar retailers. Some even think Amazon is a danger to the US economy as a whole.

The firm is, for certain, a danger to Shopify. They operate in the same arena, and Amazon has been driving down margins in online commerce for decades. It’s a proto-monopolist that puts off taking the fruits of its dominance in order to keep expanding.

That’s despite the fact that Amazon no longer competes directly with Shopify’s business model. That’s because the model interferes with the firm’s core business. Don’t expect Amazon to relax about that just because it’s now out of house.

Shopify stock could still rise

This morning’s earnings report was clearly very unexpected on Wall Street. It brings Shopify stock above its all time high. The shares have risen by about 170 percent over the last twelve months. That’s the growth into Monday’s close not including this morning’s massive price increase.

There are a huge amount of risks at Shopify Inc (NASDAQ:SHOP), (TSE:SHOP), but that doesn’t mean the firm is doomed. Growth is now coming in faster than expected previously, and the firm is confident about the future.

On Wall Street ahead of this morning’s earnings release, analysts were mixed on the firm’s future. Of the 27 analysts the Financial Times questioned about Shopify stock, however, just one was negative. 12 advised traders to Hold the shares while 16 were positive on outlook.

The median twelve month price target sat at $95, a number the firm breached easily on Wednesday morning. The Wall Street high target is just under $140 per share.

It’s clear that investors are pleased with Shopify Inc (NASDAQ:SHOP), (TSE:SHOP), and that Wall Street sees a path forward for the firm to move higher. This is still a risky stock, however, and the risks are great.

Shopify is set to host a conference call to discuss its results before the market opens on Tuesday. Once that call is done, we should start seeing updated reports from Wall Street analysts on the firm’s future, and their interpretations of the strong guidance figures.

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Aaron McLeish

3 Comments

  1. Jesus, but you are an imbecile. You say: “(Amazon) is, for certain, a danger to Shopify. They operate in the same arena” And then you say: “Amazon no longer competes directly with Shopify’s business model.” Can you make up your little mind? Amazon cannot be a danger to Shopify if they are not competing. And it cannot be ‘in the same arena’ if it is not competing directly with it. The truth is, you have no idea what you’re talking about. First of all, Amazon is actually a huge supporter of Shopify. Most of Shopify’s initial growth was because Amazon encouraged its merchants to move their stores to Shopify when Amazon exited the store-hosting business. Shopify actually helps Amazon (and vice versa) by allowing Shopify customers sell on Amazon. Don;t quit your day job. A

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