Shopify (SHOP) to Report Q3 Earnings: Is a Beat in Store?

Shopify Inc. SHOP is set to report third-quarter 2018 results on Oct 25.

Notably, the company’s earnings outpaced the Zacks Consensus Estimate in each of the trailing four quarters, delivering an average positive surprise of 232.5%.

In the last reported quarter, Shopify reported adjusted earnings of 2 cents per share, surpassing the Zacks Consensus Estimate by 4 cents. The figure also compared favorably with the year-ago quarter’s loss of 1 cent.

Moreover, revenues surged 61.5% from the year-ago quarter to $244.96 million, comfortably outpacing the Zacks Consensus Estimate of $235 million. The figure also fared better than the guided range of $230-$235 million. Top-line growth benefited from a diversified expanding merchant base.

What to Expect?

For third-quarter 2018, Shopify projects revenues in the range of $253-$257 million.

The corresponding Zacks Consensus Estimate is currently pegged at $257.14 million, marginally ahead of the higher end of the guided range, representing a surge of almost 50% from the year-ago quarter.

However, the analysts polled by Zacks predict a loss of 3 cents per share versus year-ago reported earnings of 5 cents per share.

Let’s see how things are shaping up for the upcoming announcement.

Factors Likely to Influence Q3 Results

Shopify has been developing various apps, including varied augmented reality (“AR”) and virtual reality (“VR”) based applications, in order to streamline customer experience.

In the quarter to be reported, the company introduced Shopify AR, in a bid to enhance engagement. For instance, the mobile shoppers will be able to view 3D models for assessing whether the purchase of cycles, furniture, among others, will fit in the physical space appropriately.

We believe that the company will reap benefits from investments in latest technological developments.

Recently, it also revamped its Shopify App Store, in order to provide an enhanced experience on mobile and desktop.

Further, Shopify rolled out a new feature, named Locations, enabling customers to track orders seamlessly. Notably, Shopify Advanced retailers with select locations plan, among others, can benefit from the enhanced inventory management solution.

With an aim to make the platform more merchant friendly, Shopify is working on extending language capabilities beyond English. The focus on local languages is acting as a tailwind to bolster its international presence. We believe that this inclusive move will boost engagement and consequently increase adoption, going forward.

We believe that the company’s easy-to-use upgrades and expanding merchant base are likely to boost Gross Merchandise Volume (“GMV”), which soared 56% from the year-ago quarter to $9.1 billion in the last reported quarter. This trend is anticipated to continue, thereby aiding the company to perform impressively.

Moreover, sales channels like Google Pay, Facebook Messenger, Instagram, Pinterest, eBay EBAY and Amazon AMZN continue to attract new merchants. The availability of Apple Pay, Google Pay and the addition of Canada Post as sales channels are expected to have a significant impact on its top line in the soon-to-be reported quarter.

Shopify’s expanding partner ecosystem is aiding it to identify and reach out to merchants who are otherwise inaccessible. Notably, in the second quarter, more than 16,000 partners had referred merchants to Shopify over the past 12 months.

We expect the momentum witnessed by Shopify Payments, Shopify Capital and Shopify Shipping to continue in the to-be-reported quarter as well. Further, the launch of Shopify Ping in the last reported quarter is expected to boost top-line growth.

Shopify Inc. Price and EPS Surprise

Shopify Inc. Price and EPS Surprise | Shopify Inc. Quote

What Our Model Says

According to the Zacks model, a company with a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) has a good chance of beating estimates if it also has a positive Earnings ESP. The Sell-rated stocks (Zacks Rank #4 or 5) are best avoided.

Shopify has a Zacks Rank #3 and an Earnings ESP of +112.19%, which increases the odds of an earnings beat. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Another Stock With Favorable Combination

Here is another company, which, per our model, also has the right combination of elements to post an earnings beat in the to-be-reported quarter:

Bristol-Myers Squibb Company BMY has an Earnings ESP of +0.73% and a Zacks Rank #1. The company is slated to report third-quarter earnings on Oct 25. You can see the complete list of today’s Zacks #1 Rank stocks here.

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