Shopify share price: what to expect in Q1 earnings

Ecommerce platform Shopify [SHOP] has seen tremendous growth in recent years, currently powering more than one million businesses. Shopify's investors, and traders of the firm’s share price, are sure to be delighted. When the company debuted on the stock market in 2015, shares cost just $17 each. Five years further down the line on 4 May, Shopify’s share price is now up more than 3776% – valued at $658.89.

With Q1 earnings due to be released on 6 May, what will the company’s recent performance show it’s share price investors?

What’s happening with Shopify’s share price?

Shopify last issued quarterly results in February, reporting earnings per share of $0.43 for the previous quarter, beating the Zacks’ consensus estimate of $0.24.

The software company announced revenues of $505.2m during the quarter, compared to analyst estimates of $482.1m. Following the results, Shopify’s share price popped, rising 7.8% to a new 52-week high of $593.89. Overall, the share price has continued to climb.

But despite this earnings beat, analysts are expecting Shopify to post negative earnings per share of -$0.18 in the upcoming quarter, according to Yahoo Finance. For the full year 2020, they expect EPS to come in at $0.10.

The trends driving Shopify’s share price

Shopify’s upcoming results may surprise, however. While there has been a growing trend for consumers shopping online over the years, current lockdown measures are adding fuel to the fire. According to research by Rukuten Intelligence, online spending in the US (from the beginning of March to mid-April) has increased by more than 30% compared to last year.

Looking to the future, a recent eMarketer report estimated that 16% of sales in the US will be made online by 2023, compared to 11% in 2019, reported The Motley Fool.

"With a number of retail closures and shelter-in-place guidelines from various U.S. states, e-commerce has become [essential] for retailers/brands, a dynamic that should benefit Shopify longer-term,” Raymond James analyst, Brian Peterson wrote in a note to clients.

Businesses are also being forced to adapt to online shopping, in order to keep trading while brick and mortar stores are being forced by governments to close. Opening a digital storefront has therefore been essential for businesses to keep trading — and Shopify’s subscriptions are growing as a result.

The platform has two primary revenue streams, the subscriptions themselves (which range from $29 up to $299 per month) and add-on services such as web design, payment processing, shipping and marketing.

“At the end of 2019, Shopify had over 1 million businesses on its platform, and its subscription sales accounted for 41% of total sales in 2019, compared to 43% in 2018, 46% in 2017, and 48% in 2016,” Aditya Raghunath wrote in the Motley Fool. “The subscription business is the significantly more profitable segment of the business. In 2019, the subscription segment accounted for 59.4% of gross profits as it had a gross margin of close to 80%.”

“The subscription business is the significantly more profitable segment of the business. In 2019, the subscription segment accounted for 59.4% of gross profits as it had a gross margin of close to 80%” - Aditya Raghunath

A boom time for online shopping

During the pandemic, Shopify has been handling “Black Friday level traffic every day”, according to a tweet sent by the company’s CTO, Jean-Michel Lemieux, on 16 April.

To put that claim in context, Investor’s Business Daily reported that Shopify made $2.9bn in sales between Black Friday and Cyber Monday in 2019, up 61% YoY.

Following Lemieux’s tweet, Colin Sebastian, an analyst at Robert W. Baird & Co., wrote in a research note that “this is another positive indicator for the strength of Shopify’s platform, and a more positive signal for Shopify’ s ongoing business trends.”

Is Shopify a buy?

Shopify is currently ranked #2 by Zack’s making it a buy, despite the fact that many — even those optimistic about the stock — hold share price targets lower than its current value. On the more positive end of the scale, The Fly reports that Wedbush analyst Ygal Arounian raised the firm's share price target on Shopify to $550 from $445 at the end of April, maintaining a neutral rating on the stock.

However, Piper Sandler reduced its target price on shares from $545 to $332, whilst KeyCorp also reduced its target price from $575.00 to $500.00, with an overweight rating — both considerably below the current share price.

Of 32 analysts polled by CNNMoney, two have given a sell rating, 16 recommend the stock as a hold and 12 say it’s a buy. The median share price target is $500, although there are some high estimates of $700.

Indeed, Zack’s figures show that investors may be thinking of Shopify as a long-term bet. The firm anticipates that Shopify could deliver an earnings surprise of +5.44%, and is expected to have an earnings growth rate of 25.84% over the next three to five years.

Shopify' s share price vitals, Yahoo Finance, 5 May 2020