Shopify Inc. (TSX:SHOP)(NYSE:SHOP) reported its first-quarter numbers last week and confirmed that it remains firmly on the growth track. The e-commerce company blew sales estimates away, sending the stock surging. Counting in Shopify’s 13% gains in the past week, the stock has now doubled year to date.
For investors who are wondering if Shopify is still worth investing in at current prices, a quick look at five key numbers from its Q1 earnings report should give you a sense of where the company is headed.
Subscription revenue up 60%
Shopify is in the early stages of growth that’s focused more on setting up a loyal merchant base right now than making money. Interestingly, management chose not to give away merchant count numbers this time; all it said was that “a record number of merchants joined the platform” in Q1. For perspective, the company added 50% net new merchants in FY 2016 with the absolute number exceeding 375,000 as of Dec. 31, 2016.
What’s important is that merchants appear to be sticking to Shopify. Its Subscription Solutions revenue, or the monthly fees that merchants pay for using its platform, jumped 60% year over year in Q1. Subscriptions are the key source of income for the company. Shopify’s monthly recurring revenue (number of merchants times monthly average subscription fee) surged 62% year over year.
Revenue up 75%
Strong Subscription Solutions revenues combined with 92% surge in Shopify’s revenue from Merchant Solutions — its only other source of revenue that comprises earnings from payments made on its portal and shipping — drove the company’s total Q1 revenue 75% higher to US$127.4 million. Shopify beat its own Q1 guidance of sales between US$120 and US$122 million.
GMV up 81%
Shopify’s gross merchandise volume (GMV), which reflects the total dollar value of orders processed, surged 81% to US$4.8 billion in Q1, meaning orders worth as much were placed via the company’s platform during the quarter. Of those volumes, 38% were processed through Shopify Payments, its in-house payment gateway that allows merchants to start accepting payments instantly without a fuss.
Loss up 53%
Despite the growth in GMV and revenues, Shopify’s loss jumped nearly 53% to US$13.6 million, largely because of the huge expenses on sales, marketing, and research and development.
That’s not necessarily a bad thing. As I mentioned earlier, Shopify is still in its nascent growth stage, and what matters is that the company is going beyond the traditional e-commerce ways to tap growth potential, some examples being its large enterprise platform Shopify Plus — Google is a Shopify Plus client — and its own credit card reader.
Projected revenue growth 60%
Encouraged by its strong Q1 performance, Shopify upgraded its full-year outlook; it’s now expecting to generate US$615-630 million in revenues, representing 60% growth at the mid-point from 2016. Its net losses, however, are expected to almost double to US$71 million at the mid-point.
All said, don’t expect Shopify to be profitable anytime soon. Every business takes time to break even, and Shopify is no different. The good thing is that the company already has some big names as clients and is growing. The stock could be volatile, but that shouldn’t be a concern for long-term investors.
Motley Fool Canada's market-beating team has just released a brand-new FREE report revealing 5 "dirt cheap" stocks that you can buy today for under $49 a share. Our team thinks these 5 stocks are critically undervalued, but more importantly, could potentially make Canadian investors who act quickly a fortune. Don't miss out! Simply click the link below to grab your free copy and discover all 5 of these stocks now.
Fool contributor Neha Chamaria has no position in any stocks mentioned. David Gardner owns shares of Alphabet (A shares) and Alphabet (C shares). Tom Gardner owns shares of Alphabet (A shares), Alphabet (C shares), and Shopify. The Motley Fool owns shares of Alphabet (A shares), Alphabet (C shares), Shopify, and SHOPIFY INC. Shopify is a recommendation of Stock Advisor Canada.