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This Sets Shopify up for a Monster Run

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Earnings season is finally upon us! That means we can expect big movement after companies report earnings. One thing to watch for are the companies that operate in your favourite company’s industry. While each business will post results based on their own earnings, it isn’t uncommon to see trends appear from similar businesses.

Take Facebook and Google, for example. These are the two largest distributors of ad space. Both companies recently reported earnings and smashed it out of the park. This not only bodes well for the tech sector but for stocks in general. As we come out of the pandemic, institutional investors will be pleased to see outstanding reports like these. One Canadian company reported earnings yesterday, and its results bode well for Shopify (TSX:SHOP)(NYSE:SHOP). Which company?

One of the biggest growth stories since the March crash

In late February and early March, retail investors were clamouring about the opportunity that presented itself when Lightspeed (TSX:LSPD)(NYSE:LSPD) fell more than 70% from its pre-pandemic highs. Investors that got in around that time are now looking back at returns of nearly 700%! That is incredible growth for such a short period.

Yesterday, Lightspeed reported $57.6 million in quarterly revenue. This represents a 79% increase year over year. In terms of its recurring software and payments revenue, Lightspeed reported a year-over-year increase of 85%! Clearly, the company is continuing to grow at break-neck speeds.

Lightspeed has also been keeping up with its competition through the acquisitions of ShopKeep and Upserve. The addition of these two companies into its portfolio has added another 31,000 locations into the Lightspeed network. The payments industry is cut-throat, and companies are currently fighting for market share. Lightspeed’s recent results and acquisitions suggest that it may be able to become a winner in this space.

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What does that mean for Shopify?

With Lightspeed’s earnings behind us, all eyes will turn to Shopify for its earnings call on February 17. Like I mentioned in the opening, companies in the same industry often report similar outcomes. If one company beats, then there is a very good chance its peers will. Much like Lightspeed, Shopify operates as an e-commerce enabler. It provides POS systems, e-commerce networks, and more.

Shopify has produced excellent numbers since turning public. Each year, it has reported annual revenue growth of over 45%. Its Q3 2020 revenue was reported as being 96% greater than the year prior. In terms of monthly recurring revenue, Shopify has managed to increase its numbers at a compound annual growth rate of 47% since 2015. Never has the company reported a decrease in monthly recurring revenue.

This past November, the company reported its strongest Black Friday-Cyber Monday event ever. Shopify merchants posted a total revenue of $5.1 billion over the weekend. With much of this year’s Christmas shopping occurring online, investors are expecting Shopify to greatly outperform.

Foolish takeaway

Lightspeed is a company that has caught the attention of many. Yesterday, the company posted amazing numbers which set the stage for Shopify. It is in an excellent position to follow up with excellent numbers of its own. Perhaps consider adding it to your portfolio before it explodes after earnings.

Lightspeed and Shopify are two outstanding growth stocks; however, there are other companies that are often forgotten about...

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This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to its CEO, Mark Zuckerberg, is a member of The Motley Fool's board of directors. Fool contributor Jed Lloren owns shares of Shopify. David Gardner owns shares of Alphabet (A shares), Alphabet (C shares), and Facebook. Tom Gardner owns shares of Alphabet (A shares), Alphabet (C shares), Facebook, and Shopify. The Motley Fool owns shares of and recommends Alphabet (A shares), Alphabet (C shares), Facebook, Shopify, and Shopify. The Motley Fool owns shares of Lightspeed POS Inc.

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