Shopify Earnings | Why Are Shares SKYROCKETING? | Summary and Q&A

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October 27, 2022
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Brian Feroldi
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Shopify Earnings | Why Are Shares SKYROCKETING?

TL;DR

Shopify reported Q3 revenue of $1.366 million, beating estimates, but saw declining margins and negative net income.

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Questions & Answers

Q: What were the headline numbers for Shopify's Q3 2022 results?

Shopify's Q3 revenue grew by 22% to $1.366 million, beating Wall Street estimates, but the company saw declining margins and negative net income.

Q: How did Shopify's expenses impact its financials in Q3?

Shopify's expenses grew significantly in Q3, with adjusted sales and marketing expenses growing by 21%, research and development expenses growing by 88%, and general and administrative expenses growing by 78%.

Q: What were the growth rates for Shopify's different business units in Q3?

In Q3, subscriptions grew by 12%, while gross profit in this business line grew by 9%. Merchant Solutions was the standout, growing by 26%, but gross profit in this unit only grew by 8%.

Q: What were the key highlights from Shopify's Q3 results?

Shopify's Q3 results showed strong revenue growth and the success of its Merchant Solutions business. The company also announced partnerships with Ernst & Young and KPMG. However, margins declined, and expenses grew faster than revenue.

Q: What is Shopify's strategy for competing with Amazon?

Shopify is making significant investments in its fulfillment network, with a focus on achieving two-day delivery. The company aims to help its customers compete effectively with Amazon by providing faster shipping options.

Q: How did the Shopify fulfillment network perform in terms of two-day delivery?

In September alone, over two-thirds of domestic packages delivered through Shopify's fulfillment network were delivered within two business days, a significant increase from less than two percent before the network was updated in early 2021.

Q: What are Wall Street's expectations for Shopify's future growth?

Wall Street is expecting 16% growth in the next quarter, with revenue reaching $1.6 billion. For the full year, they anticipate revenue of about $5.5 billion, up 19% from the previous year.

Q: Where does Shopify stand in terms of valuation?

Shopify's price-to-sales ratio is currently around 8.5, historically low. However, the price-to-gross profit ratio is high at around 16, indicating that Wall Street still values the company at a premium. The company has not yet achieved profitability or optimized for free cash flow.

Summary & Key Takeaways

  • Revenue for the quarter grew 22% to $1.366 million, beating Wall Street's estimate of $1.3 billion.

  • Margins declined, with gross margin at 48.5%, operating margin at -3.3%, and net margin at -2.2% on a non-GAAP basis.

  • Expenses grew faster than revenue, leading to a larger loss from operations.

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