Shopify (SHOP, Financial) did not enter its third financial quarter in good shape. In July, CEO Tobi Lutke said the company mishandled the situation coming out of the Covid-19-drive e-commerce spike. He acknowledged the mistake, but it led to cuts in Shopify's recruiting, support and sales divisions.
The move generated mixed emotions from the investor base, but the multinational e-commerce company put certain fears to rest when it reported third-quarter earnings results on Oct. 27.
After reporting a narrower-than-expected loss for the third quarter and revenue that beat Wall Street's estimates, shares of Shopify jumped 17%. The e-commerce company is doing well in integrating Deliverr, a leading fulfillment technology provider Shopify acquired for $2.1 billion, and it reported excellent numbers across the board.
Despite the recent uncertainty in the global economy, Shopify has continued to experience steady growth, helping businesses of all sizes to thrive in the digital age. Though Shopify has definitely faced some bumps along the road, it is clear to me that the company's expansion over the past few years has been mostly by its own merits, though it did have a significant unsustainable spike that was driven by external factors, namey the Covid-19 pandemic.
As these external factors have begun to stabilize, Shopify's growth rate has naturally normalized over time. This does not mean that Shopify is a bad company. In fact, given its current valuation relative to its historical highs, it might even offer a potential value opportunity (though of course, those buying at the peak ofthe bubble have been disappointed).
Though Shopify may need some time to recover from its slump, with so many successful companies continuing to rely on Shopify's e-commerce platform as they navigate through these turbulent times, it seems likely that Shopify will continue to be a major player in online retail for years to come.
Shopify provides much-needed clarity in its latest earnings report
For some background, Shopify is a popular e-commerce platform that has come under increasing scrutiny from investors in recent months. Following several disappointing earnings reports, investors have been clamoring for some clarity on Shopify's performance and prospects. With Shopify's latest earnings announcement, investors finally got what they needed: clear, detailed insight into Shopify's performance and growth plans.
In its recent earnings report, Shopify highlighted several key areas where it has seen strong growth. Gross merchandise volume, a key metric for any e-commerce company, rose 11% to $46.2 billion in the third quarter, while revenue jumped 22% from the same quarter last year.
Shopify has had amazing growth despite the slowdown from the e-commerce peak during Covid lockdowns, with gross profit dollars increasing by 9% in the third quarter of this year compared to the prior-year period. The company is attributing the increase to many factors, but progress was also inhibited by othre factors, including more of its revenue coming from lower-margin Merchant Solutions, less profit from Shopify Payments and Deliverr and increased investments in cloud infrastructure. Regardless of the many issues with its growth, it is clear that Shopify is doing something right, with its impressive 45% CAGR over the past three years indicating strong and continued success in the e-commerce industry.
Operating expense growth is also expected to slow down in the upcoming quarter. With the growth of e-commerce slowing down, Shopify must continue to be fiscally responsible for maintaining stability in the future. This is especially important given the unfavorable comparisons to 2020 and 2021, which could significantly impact Shopify's popularity with investors going forward. The company forecasts that operating expense growth will slow down in the upcoming quarter as Shopify takes steps to control its spending amidst these uncertain times. By remaining disciplined and prudent about costs, Shopify can help ensure its success for many years.
Takeaway
Shopify is still a leader in the e-commerce industry, and its growth in the third quarter is further evidence of that. Despite rising inflationary pressures, Shopify's revenue, gross profit dollars and the total value of merchandise sold on the platform grew steadily throughout the quarter. Additionally, Shopify made significant strides in terms of organizational restructuring, rolling out a new compensation framework and integrating its latest acquisition, Deliverr.
Shopify has dedicated a lot of time and effort to successfully establish itself in today's market. And with the company set to continue making big strides on the horizon, it's clear that Shopify will remain one of my favorite players in this dynamic field for years to come.
Shopify's earnings seem to confirm what many investors already suspected: despite recent setbacks. The company is still on track to achieve long-term success and growth. Whether you're an existing investor or considering becoming a new Shopify shareholder, I believe the third-quarter earnings results provide many solid points in Shopify's favor. The stock is also trading far below all-time highs and is even undervalued based on the GF Value calculator:
