E-commerce platform provider Shopify Inc. (NYSE:SHOP) has been a major money maker for investors who have been able to ride out the turbulence over the past year. Now, it looks like SHOP stock is setting up for another dip following its first quarter earnings results, released on Tuesday before the bell.
SHOP closed down 4.69% for the day, despite beating revenue expectations but failing to deliver on earnings-per-share growth. The company reported first-quarter losses of $15.9 million, or 16 cents per share, compared to expectations of a 5-cent-per-share loss. Revenue came in at $214.3 million, a 68% rise from the year-ago quarter and above expectations of $202 million.
What Do the Results Say?
While the EPS loss was less than stellar, the revenue figures are still pretty impressive, although admittedly less so than the 71% revenue growth we saw in the fourth quarter.
Outside of the headline numbers, the company’s growth looks solid. As a subscription service, monthly recurring revenue is one of the most important metrics investors should be keeping an eye on and the Q1 figures certainly looked promising. MMR was up 57% from the year-ago quarter, a slight disappointment compared to Q4’s 62%, but impressive nonetheless. At $32.5 million, MRR revenue made up about 15% of the firm’s overall revenue — a big step forward.
Another important aspect of the earnings release was the results from SHOP’s lending arm, Shopify Capital. That arm of the business appears to be growing rapidly, issuing $60.4 million worth of cash advances this quarter — over three times what the company issued in the year-ago quarter. This should be music to investors ears, as Shopify Capital represents a huge growth opportunity for the platform because the company’s massive user database allows it to more effectively calculate the risk of a loan, thus making it possible to dole out capital that banks may not be able to.
Why the Dip?
So, although there was nothing to be overly concerned about in those Q1 results, they weren’t quite as stellar as investors were hoping. Still, they paint a promising picture of the company’s growth — so why the dip in SHOP stock?
As a young, high-growth company, SHOP is under the microscope. The slightest disappointment or bit of bad news can put the stock under pressure and that’s what’s happening here. Not only that, but SHOP stock was already under pressure after short-seller Andrew Left commented that the company’s merchant sign-ups might take a hit from the data-protection concerns that have hit the social media industry.
Left’s comments took the stock remarkably lower, but SHOP made its way higher in the days before it’s Q1 results as investors geared up for another dazzler. The fact that the numbers weren’t quite as high as in previous quarters deflated investor confidence and, once again, sent the stock lower.
The Bottom Line on SHOP Stock
Investors who add SHOP stock to their portfolios should be expecting a reasonable amount of volatility. The company is still working to become profitable and peaks and troughs are to be expected alongside the news cycle.
Will the data scandal meaningfully impact merchant sign-ups? Probably not. As I mentioned in a previous article, privacy concerns have always been a problem for social media users and this bump in the road will soon be forgotten. People are increasingly using platforms like Instagram to do their shopping because they want to buy things that their friends recommend and Shopify will benefit from that trend.
However, can we expect news about the data scandal to continue to impact SHOP stock? Of course we can- but those are great buying opportunities.
The bottom line is that Shopify’s Q1 results are strong and point to continued growth in the future. The company is expanding its platform to offer merchants an all-inclusive service that allows them to sell, ship and advertise all in one place. As long as the firm is able to continue attracting and holding on to customers, SHOP looks like a great play. Investors will have to be willing to ride out the volatility that comes with holding a position in SHOP, but long-term gains are likely.
As of this writing, Laura Hoy did not hold a position in any of the aforementioned securities.