Shopify Earnings: Strong Results as Revenue and Profitability Top Expectations

Shopify Stock at a Glance

• Fair Value Estimate: $57
• Morningstar Rating: 3 stars
• Morningstar Uncertainty Rating: Very High
• Morningstar Economic Moat Rating: Narrow

Shopify Earnings Update

Narrow-moat Shopify SHOP reported busy first-quarter results, with revenue and profitability that exceeded our expectations. Management provided some guideposts for next quarter that point to better performance than we were modeling. It also announced a 20% headcount reduction. Additionally, the company is selling its logistics business, including Shopify Fulfillment Network, to Flexport. We had thought Shopify Fulfillment Network would help drive meaningful growth but pressure margins, especially as it scaled.

Given the results, guidance, and our attempt to model Shopify without its logistics business, we are raising our fair value estimate to $57/CAD 78 per share from $45/CAD 60. We expect some changes to our model as management provides further information upon closing the sale of the logistics business. Until then, we view the shares as fairly valued after the postearnings pop.

First-quarter revenue grew 25% year over year (up 27% in constant currency) to $1.508 billion, ahead of our expectations. Subscription revenue grew 11% year over year, while merchant solutions accelerated sequentially for the fourth straight quarter to 31% year-over-year growth. Europe was strong. Relative to our model, subscription was slightly light while merchant solutions was strong.

Gross merchandise volume grew 15% year over year to $49.6 billion, while gross payments volume processed through Shopify Payments was $27.5 billion, or 56% of GMV. We calculate a take rate of 2.27%, compared with 1.99% a year ago, and believe this should continue to expand as more merchant solutions are adopted. Monthly recurring revenue was $116 million, up 10% year over year and an improvement on last quarter’s 7% growth.

Despite the good quarter, we think macro conditions are negatively affecting results and believe Shopify will continue to find success in attracting larger brands to the platform, especially given the rash of new features, including Commerce Components.