11/12/2024
Shopify’s (SHOP) $113 phenomenal results and guidance propels the stock 25% higher to $113 by mid-morning.
I bought and recommended Shopify on 8/8 and 7/19 for around $66 and $63. I also recommended it on Seeking Alpha in July.
Even with the post-earnings bump, which has taken it to $113, I still think it would be worth buying once the euphoria settles. This company is firing on all cylinders and should continue growing for the next 3-5 years.
Shopify excelled on several metrics for the third quarter ended Sep 30th, 2024:
Gross merchandise volume rose 24% to $69.72 billion, beating the consensus estimate of $67.78 billion.
Its revenue rose 26% YoY to $2.16 billion, beating expectations by $50Mn, which was the sixth consecutive quarter of greater than 25% revenue growth for the e-commerce company, excluding logistics.
Monthly recurring revenue rose 28% to $175 million vs. the consensus estimate of $173.6 million. Monthly recurring revenue is a higher-margin subscription revenue business used by larger clients for more features and modules and multi-channel operations. This is Shopify’s growth catalyst for the future, and they’re focused on building and scaling this to differentiate from competitors.
Operating income was up 132% to $283 million, and free cash flow grew 53% to $421 million.
“We have grown free cash flow margin sequentially each quarter this year, consistent with what we delivered last year. These results demonstrate the durability of our business, our multiple avenues for growth, and continued discipline of balancing both future growth investment and operational leverage,” highlighted CFO Jeff Hoffmeister.
The biggest reason behind the 25% jump is the guidance and improving profitability, confirming my earlier thesis that Shopify’s strong focus on providing a rich, multi-channel platform is allowing it to gain market share from plain vanilla, single-feature vendors. Shopify’s management had cited client wins from SalesForce (CRM) earlier as testimonials of its progress.
Guidance
Looking ahead, Shopify sees Q4 revenue growing at a mid-to-high-twenties percentage rate on a year-over-year basis, which is a higher implied rate than the implied guidance. The earlier guidance was 23% so that is quite a large improvement.
Operating Profit Margin will continue to improve, as operating expense as a percentage of revenues decreases to 32% to 33% from an earlier average of 35%.
Free cash flow margin to be similar to Q4 2023 — Around 19.5%, another solid improvement from the previous year.
I plan to buy on declines and hold for the long term of 3-5 years.