Bear's Shopify DecQ Review

Investment Analysis Clubs Saul’s Investing Discussions
1

An hour or so ago, Shopify announced their December 2017 quarter earnings, and wow, it’s a beaut.

Revenue: 222.8M (up 71% YoY)

Adj. EPS: remember when I said I knew they’d beat the 5 or 6 cents expected, but they really didn’t have a reason to blow the doors off and show like 15 cents or something (http://discussion.fool.com/bear39s-q4-earnings-preview-vol1-3296……well), they showed like 15 cents or something. An incredible beat and a powerful testament to what’s possible. They didn’t even pull back on their spending! OpEx was 15M more than in the September quarter. They just couldn’t spend enough!

GMV: $9.1 billion (up 65% YoY)

MRR: 29.9M (up 62% YoY)

Gross Profit: 121M (up 78% YoY)

Operating Expenses: 127M (up 64%)

Outlook:

For the full year 2018, Shopify currently expects
Revenues in the range of $970 million to $990 million
GAAP operating loss in the range of $95 million to $105 million
Adjusted operating income in the range of $(5) million to $5 million, which excludes stock-based compensation expenses and related payroll taxes of $100 million

For the first quarter of 2018, Shopify currently expects
Revenues in the range of $198 million to $202 million
GAAP operating loss in the range of $25 million to $27 million
Adjusted operating loss in the range of $6 million to $8 million, which excludes stock-based compensation expenses and related payroll taxes of $19 million

Revenue outlook is more than expected, but my guess is the earnings (or lack there of) outlook will disappoint the market (the stock’s down a couple percent premarket). I think this is utterly short sighted! The gap between profit and expenses continues to narrow, but they still spent 64% more than last DecQ growing this business! I say we let them! Nay, applaud them! Shopify is still growing like nothing else!

Bear

PS - Allow me one more thought. As I said, shares are down slightly at the moment. I don’t know what will happen today, or tomorrow. When markets closed yesterday, Shopify was up more than 36% in the first 1.5 months of 2018. Let’s remember that and let’s also look to next quarter and the next. This is a special company. Don’t miss it.

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Just to quick addition to Bear’s review…

Monthly Recurring Revenue growth pretty consistent albeit at a lower rate than company revenue growth, which indicates the addition of new customers. It’s good to see that this growth is not decelerating.

Shopify Plus revenues (the more profitable customers) is growing faster than company sales, which means that they are getting some pretty good traction up-selling to higher paying customers.

Gross Merchandising Volume is growing quickly, but decelerating. It would be nice to see the growth accelerate (like Amazon) as the company gets bigger. I suppose that there is only one Amazon.

Shopify Capital hasn’t quite as much of a history. But it’s growing nicely.

MRR: Monthly Recurring Revenue (millions)
S+: Shopify Plus MRR (millions)
GMV: Gross Merchandise Volume (billions)
GPV: Gross Payments Volume (billions)
SCap: Shopify Capital Issued (millions)


MRR	Mar	Jun	Sep	Dec	        GMV	Mar	Jun	Sep	Dec
2016	12.8	14.4	16.3	18.5	        2016	2.7	3.3	3.8	5.5
2017	20.7	23.7	26.8	29.9		2017	4.8	5.8	6.4	9.1
										
MRRGr	Mar	Jun	Sep	Dec		GMVGr	Mar	Jun	Sep	Dec
2016                                            2016
2017	61.7%	64.6%	64.4%	61.6%		2017	81.0%	75.8%	68.4%	65.5%
										
S+	Mar	Jun	Sep	Dec		SCap	Mar	Jun	Sep	Dec
2016	1.4	1.9	2.4	3.1		2016			9.2	14.7
2017	3.5	4.3	5.3	6.3		2017	19.0	37.2	44.1	39.7

S+Gr	Mar	Jun	Sep	Dec		SCapGr	Mar	Jun	Sep	Dec
2016                                            2016
2017	149%	130%	117%	100%		2017			379%	170%

Merchandising Volume is growing faster than Subscriptions (and MRR). MV has lower margins than Subscriptions, which is lowering overall margins. So margins in general are going to come down somewhat over time. This should be okay, especially given the growth in Shopify Plus revenues, the customer’s of which are paying more in subscriptions with lower margins due to their sales volume.


Mer	Mar	Jun	Sep	Dec		MerGP	Mar	Jun	Sep	Dec
2015	15.0	19.5	23.2	35.7		2015	4.2	5.2	5.6	9.6
2016	34.0	43.0	49.7	74.0		2016	8.8	11.6	13.2	23.3
2017	65.3	80.1	89.0	128.9		2017	22.4	28.9	33.1	47.1
										
Grth	Mar	Jun	Sep	Dec		GP%	Mar	Jun	Sep	Dec
2015						2015	28.3%	26.8%	24.1%	27.0%
2016	126.8%	120.7%	114.2%	107.5%		2016	25.9%	27.0%	26.5%	31.5%
2017	92.0%	86.3%	79.0%	74.2%		2017	34.3%	36.1%	37.1%	36.5%

Sub	Mar	Jun	Sep	Dec		SubGP	Mar	Jun	Sep	Dec
2015	22.4	25.5	29.6	34.6		2015	17.3	20.0	23.1	26.9
2016	38.7	43.7	49.8	56.4		2016	30.5	34.6	39.3	44.4
2017	62.1	71.6	82.4	93.9		2017	49.8	57.9	67.0	74.1
										
Grth	Mar	Jun	Sep	Dec		GP%	Mar	Jun	Sep	Dec
2015						2015	77.5%	78.7%	78.3%	77.9%
2016	73.2%	71.5%	68.6%	62.9%		2016	78.7%	79.2%	78.8%	78.8%
2017	60.4%	63.9%	65.4%	66.6%		2017	80.3%	80.9%	81.2%	78.8%

Generally, a great quarter as well as continued future prospects for Shopify.

DJ

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