Shopify Fails to Impress Investors Despite 46% Q3 Revenue Growth

Shopify reported higher revenue in Q3 but the results failed to impress investors, falling short of expectations and the company's stock took a hit in premarket trading Thursday.

The e-commerce platform reported revenues of $1.12 billion for the quarter ending Sept. 30 — 46% year-over-year — and earnings per share (EPS) of 81 cents. Analysts were expecting earnings of $1.23 per share on revenue of $1.15 billion. Gross merchandise volume (GMV) also came in below expectations at $41.8 billion versus estimates of $43.33 billion. Still, it increased 35% year-over-year.

The results were announced before the market opened on Thursday. Shopify SHOP stock fell nearly 5% in premarket trading.

The Canada-based firm still expects the largest share of its revenue to come in the fourth quarter, but it cautioned that results may not represent a significant uptick as in previous years.

"We continue to expect the fourth quarter to contribute the largest share of full-year revenue and that the revenue spread will be more evenly distributed across the four quarters than it has been historically," the company said. "While the commerce market, both online and offline, may be impacted by supply chain delays or increased costs for materials, labor, shipping or advertising in the fourth quarter, and spending on Black Friday/Cyber Monday may be pulled forward, we expect our GMV in the fourth quarter to continue to grow substantially faster than the commerce market."

Shopify said full-year 2021 adjusted operating income is expected to be above the level achieved in 2020 and it has not altered its full-year outlook since its early February guidance.

"The economy remains resilient, consumer spending on services and off-line retail is expanding, and e-commerce, after easing from its peak share as a percent of total retail, is growing at a more normalized pace relative to 2020," it said.

Among the company's Q3 financial highlights:

• Total revenue in the third quarter was $1.1 billion, up 46% year-over-year.
• Subscription solutions revenue was $336.2 million, up 37% year-over-year.
• Merchant solutions revenue was $787.5 million, up 51% year-over-year.
• Monthly recurring revenue as of Sept. 30 was $98.8 million, up 33% year-over-year.
• Gross payments volume grew to $20.5 billion, which accounted for 49% of GMV processed in the quarter, versus $14 billion, or 45%, for the third quarter of 2020.
• Gross profit dollars grew 50% to $608.9 million compared with $405.1 million for the third quarter of 2020.
• Adjusted gross profit dollars grew 49% to $616.4 million in the third quarter of 2021, compared with $412.6 million for the third quarter of 2020.
• Operating loss for the third quarter of 2021 was $4.1 million, or 0.4% of revenue, versus income of $50.6 million, or 7% of revenue, for the comparable period a year ago.
• Adjusted operating income for the third quarter of 2021 was $140.2 million, or 12% of revenue, compared with adjusted operating income of $130.9 million, or 17% of revenue, in the third quarter of 2020.
• Net income for the third quarter of 2021 was $1.1 billion, or $9 per diluted share, compared with net income of $191.1 million, or $1.54 per diluted share, for the third quarter of 2020.
• Adjusted net income for the third quarter of 2021 was $102.8 million, or 81 cents per diluted share, compared with adjusted net income of $140.8 million, or $1.13 per diluted share, for the third quarter of 2020.

Harley Finkelstein, Shopify president, pointed to several achievements for the company in 2021.

"It took 15 years for our merchants to get to $200 billion in cumulative GMV and just 16 months to double that to $400 billion," he said. "Our merchants' GMV remained strong in Q3. As the share of GMV from offline expanded within our total GMV, it is clear that entrepreneurs are embracing a future in which retail happens everywhere. Shopify is making it easier for more merchants worldwide to build direct and authentic relationships with their customers, in creative ways that work best for them."

Finkelstein also noted that all regions "remain at GMV levels above pre-COVID" and that revenue from Shopify's Facebook and Google integrations continues to grow at levels "several times over that of apps."

Click for more articles by Brian Straight.

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