Canada's leading emerging software company Shopify Inc. continues to surpass expectations as it expands the product features and channels for its now more than 500,000 retail merchant customers to sell through its digital commerce platform.
"There are so many things we can put on this flywheel to make it go faster," chief executive officer and co-founder Tobi Lutke said on a conference call with analysts on Tuesday after the company said it generated $151.7-million (U.S.) in revenue in its second quarter, up 75 per cent from the same period a year ago. The company also posted an adjusted net loss of $1.1-million or 1 cent per share. Analysts on average had expected revenues of $144.3-million and a 7-cent loss, respectively. It was the ninth time in nine quarters since its May, 2015, initial public offering that Shopify had beaten analyst forecasts.
The Ottawa company's net loss widened to $14-million, or 15 cents a share, up from $8.4-million in the same period a year ago, but investors focus on the company's adjusted numbers. Shopify upped its forecast revenue for the year to between $642-million and $648-million, from a previous range of $615-million to $630-million.
Investors embraced the results, bidding up Shopify stock to an all-time high before it closed the day up 12.7 per cent to $104.08 on the New York Stock Exchange, giving the company a market capitalization in excess of $10-billion. During the conference call, analyst after analyst gushed about Shopify's results; James Cakmak of Monness Crespi Hardt remarked "this is one of the cleanest and most impressive growth stories I've seen in a very long time. It seems like it's virtually frictionless across the board."
Several analysts upped their share price targets later in the day. While the stock is up 140 per cent so far this year, "we believe an ongoing beat and raise cadence will keep shares moving higher," wrote Raymond James analyst Brian Peterson as he increased his share price target to $110 from $93.
Shopify is not yet profitable – it has committed to be in the black on an adjusted operating profit basis by the fourth quarter of this year – but Mr. Lutke told analysts his company isn't focused on the kinds of hard metrics that make Wall Street analysts happy.
"From a perspective of building a business, we never manage the company against these financial ratios or goals," he said. "The way we think about our business is that we have our core product, which adds enormous amounts of value to the people who use it, we are constantly working on seeing about how to make it better, we have a pretty clear-eyed view of what the future of retail might look like and what kind of software it requires."
Canaccord Genuity analyst Richard Davis said that message "was very refreshing to hear … they run this business the right way. For a CEO of a company [who has] never been a public company CEO, he's demonstrated a maturity you don't normally see from CEOs" who focus on meeting Wall Street expectations. "He's building a good business and if he does that the numbers will take care of themselves. If you're an investor, not a trader, those are the companies everyone wants to own."
Shopify, which primarily serves small and medium-sized online retail merchants, has been expanding on all fronts, offering more features such as merchant cash advances, payments, credit-card readers and shipping for its merchant customers. Its platform has attracted scores of app developers that have broadened the amount of services merchants can integrate through the software. It is marketing its platform to larger retailers through its Shopify Plus offering, expanding available sales channels for its merchants to sell their wares (it recently added eBay and Buzzfeed as channels) and generating strong growth outside its core North American market.
In fact, its 56-per-cent growth in North America in the quarter was far surpassed by its pace of expansion in Asia, South America and Africa. The company processed $5.8-billion in gross merchandise value in the quarter – a full $1-billion more than the preceding three months. With nearly $1-billion cash on the balance sheet thanks to a big secondary offering earlier this year, the company is "in a position to do some bigger stuff" than the six small acquisitions it has done since its founding 13 years ago, said chief financial officer Russ Jones, who announced he will be retiring next year. But he added "nothing [is] currently contemplated but definitely that option is now available to us."
Sean Silcoff