All eyes were on Shopify (NYSE: SHOP) when the company delivered its third-quarter results late last month, and the results were exemplary. The company again generated at or near triple-digit gains in a variety of metrics. A number of factors played into Shopify’s soaring growth.
In this episode of Fool Live that aired on Oct. 29, “The Wrap” host Jason Hall and Fool.com contributor Danny Vena discuss what fed into the results and why investors seemed to take a step back.
Danny Vena owns shares of Shopify. Jason Hall owns shares of Shopify. The Motley Fool owns shares of and recommends Shopify. The Motley Fool has a disclosure policy.
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Jason Hall: Let’s shift over from a company that focuses on the ad side of things, and lets talk about Shopify. Danny Vena?
Danny Vena: I saw Shopify’s results, and I really had to do a double-take because not only were they good, but they were ridiculously good. I saw the stock price going down, but we’re going to cover that. But one of the things that has happened as a result of the pandemic is that people that historically had not turned to e-commerce yet have begun taking the plunge. You had probably 10% of sales in the United States, 11% of sales were e-commerce. Amazon had a lot of those. They had roughly half of those.
But with everybody else out there that’s competing against Amazon, Shopify is providing them the tools that they need as a merchant to get online and get out there in front of people, which is where they need to be right now as a result of the pandemic. People have largely abandoned, not everyone, but largely abandoned our physical retail. So Shopify is in the right place at the right time. I’m going to go ahead and share my screen here for just a minute so that we can look at Shopify’s earnings release while I’m talking about it.
But I mean, just look at these numbers, they are bonkers. Third-quarter revenue grew 96% year over year. It was ridiculously high last quarter as well, in the 90s. Gross merchandise volume up 109%. Gross merchandise volume is the amount of product that is sold on the platform. There are some other numbers here that are very telling. Subscription solutions revenue was up 48% year over year. When you have a subscription-based business like Shopify, that’s something that you want to see high numbers. Monthly recurring revenue was $74.4 million, up 47% year over year. Again, what they’re doing is they’re adding these merchants that are continuing on month-to-month subscriptions. So that’s also good, something else that you want to see in this type of business. There are just so many good numbers in this. As we said, gross merchandise volume up 109%, gross profits were up 87%. It just goes on and on.
I’m going to not more people with the numbers, but really let’s talk about why it was that Shopify stock actually fell in the wake of the report. There’s a couple of things I think that are feeding into that even after the fabulous numbers. First of all, Shopify said that they’re not providing financial guidance for the fourth quarter or for the coming year at this point. Wall Street hates uncertainty. They really don’t like not knowing. It doesn’t matter to me whether or not Wall Street likes it or not. I see triple-digit gains in gross merchandise volume and almost triple digits in year-over-year revenue growth, and that is good enough for me.
The other thing that I think is probably weighing on the stock price is the fact that if you look at what Shopify stock has done this year, going into the earnings report.
Hall: It’s crushing it. It was up over 150%, right?
Vena: It was. It started out the year at a little over $400 and it closed yesterday at a $1,027, so up 154%. Any time you have that type of a stock price move over the short period of time and this is 10 months into the year, I think there was a little bit of profit-taking going on.
Hall: It’s inevitable, right?
Vena: Absolutely. Even if you look at the fact that the numbers are up almost triple digits, year-over-year revenue growth for just about the whole year, but still, the stock’s up 150%. People are going to go out, they’re going to take a little bit of profits. The Wall Street guys are going to go out and they’re going to take some gains. I think Shopify did everything that it needed to do, and if you are an investor with a long-term outlook, Shopify did great.
Hall: I think it’s going to continue to do great. That’s another wonderful thing about it. Say what you want about the valuation but the addressable market is not getting smaller, and so many businesses out there need to do better with e-commerce and there’s no better partner, and you don’t partner with your biggest competitor if you partner with Amazon, love it. Danny, thanks for that.