Home Most Popular Investing Shopify (SHOP) Q3 Earnings Exceed Expectations, Revenues Surge Year over Year

Shopify (SHOP) Q3 Earnings Exceed Expectations, Revenues Surge Year over Year

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Shopify (SHOP) Q3 Earnings Exceed Expectations, Revenues Surge Year over Year

Shopify reported better-than-expected third-quarter 2023 adjusted earnings of 24 cents per share, surpassing the Zacks Consensus Estimate of 15 cents. This marks a significant improvement from the loss of 2 cents per share reported in the year-ago quarter.

The company’s total revenues saw a strong growth of 25.5% year over year, reaching $1.71 billion. This exceeded the Zacks Consensus Estimate by 2.94%.

The exceptional performance of Shopify has led to a 79.9% year-to-date increase in its share prices, outpacing the 42.8% growth of the Zacks Computer & Technology sector.

Key Highlights of the Quarter

Subscription Solutions revenues rose by 28.9% year over year to $486 million. This growth can be attributed to an increasing number of merchants joining the platform, as well as pricing changes for existing merchants on its Standard subscription plans.

Merchant Solutions revenues also showed a positive trend, increasing by 24.2% year over year to $1.23 billion. This growth was primarily driven by a robust Gross Merchandise Volume (GMV) of $56.2 billion, which improved by 22% compared to the previous year.

Furthermore, Shopify experienced significant growth in Monthly Recurring Revenues (MRR), which reached $141 million, marking a 32% increase from the year-ago quarter. Shopify Plus revenues accounted for $44 million, making up 31% of MRR.

The company witnessed substantial growth in Gross Payments Volume, which amounted to $32.8 billion in the third quarter, representing 58% of GMV processed. This marked an increase from $25 billion (54% of GMV) in the year-ago quarter.

Operational Progress

Non-GAAP gross profit increased by 32.9% year over year to $905 million, while the gross margin expanded to 52.8%, a growth of 290 basis points (bps).

Adjusted sales and marketing expenses decreased by 370 bps year over year to 16.2% of revenues, and adjusted general & administrative expenses decreased by 420 bps to 4.6%. Additionally, adjusted research & development expenses, as a percentage of revenues, decreased by 750 bps year over year to 14.2%.

In terms of operating expenses, there was a significant improvement, with non-GAAP operating expenses decreasing by 12.9% year over year to $634 million. The company’s operating expenses, as a percentage of revenues, dropped to 37%, compared to 53.3% in the year-ago quarter.

In comparison to the operating loss of $47 million in the year-ago quarter, Shopify reported adjusted operating income of $271 million.

Financial Position

As of September 30, 2023, Shopify had a strong financial position with a balance of $4.92 billion in cash, cash equivalents, and marketable securities. This represents an increase from $4.8 billion as of June 30, 2023.

The company also witnessed a significant improvement in free cash flow, with $276 million generated in the third quarter, compared to $97 million in the year-ago quarter.

Guidance

Looking ahead to the fourth quarter of 2023, Shopify expects revenue growth in the high teens on a year-over-year basis. Adjusting for a 400-500 bps headwind related to the divestiture of the logistics business, revenues are expected to grow in the low-to-mid-twenties on a year-over-year basis.

The gross margin is projected to be 46%, representing a 300 to 400 bps year-over-year increase. However, the gross margin is expected to decline sequentially.

Operating expenses are expected to decline by a low-single-digit percentage compared to the previous quarter.

For the full year 2023, Shopify anticipates revenue growth at a mid-twenties percentage rate year over year, with capital expenditure expected to be approximately $45 million.

Zacks Rank & Stocks to Consider

Shopify currently holds a Zacks Rank #3 (Hold).

For investors seeking better-ranked stocks in the broader Zacks Computer & Technology sector, consider NetEase (NTES), NVIDIA (NVDA), and Model N (MODN), all of which hold a Zacks Rank #1 (Strong Buy).

NetEase has seen a year-to-date gain of 51.1% and is set to report its third-quarter 2023 results on November 16.

NVIDIA has returned 197.5% year to date and is scheduled to report its third-quarter fiscal 2024 results on November 21.

Model N, despite a decline of 39.2% year to date, is set to report its fourth-quarter fiscal 2023 results on November 9.

For more information on these stocks, the complete list of today’s Zacks #1 Rank stocks can be found here.

Disclaimer: The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.