Shopify's stock soars more than 20% as margin performance stands out

By Emily Bary

Management showed that it's 'more committed to margin expansion than expected,' analyst says

Shopify Inc. is winning market share even as consumers become more discerning with their spending.

That translated into upbeat financial results for the latest quarter, as Shopify (CA:SHOP) (SHOP) grew gross merchandise volume by 22% to $67.2 billion, which was above the $65.8 billion consensus view.

The company also stood out with its margin and profit performance, analysts said. The latest results "showed the [the top line] is more resilient than feared and [management] is more committed to margin expansion than expected," wrote Jefferies' Samad Samana.

He noted that the company saw far lower operating expenses than anticipated, translating to a 15% operating margin that was well above the roughly 12% consensus view.

Shopify shares are surging more than 20% in morning trading Wednesday.

The company, which offers software and other products that facilitate e-commerce, posted second-quarter net income of $170 million, or 13 cents a share, compared with a net loss of $1.3 billion, or $1.02 a share, in the year-earlier period. On an adjusted basis, Shopify earned 26 cents a share, whereas analysts tracked by FactSet were looking for 20 cents a share.

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Free cash flow of $333 million was well ahead of the $255 million that analysts had been projecting.

Shopify's revenue for the second quarter came in at $2.0 billion, up 21% and roughly in line with what analysts were modeling.

"While merchant solutions revenue growth decelerated from Q1...and Shopify experienced a slight sequential decline in overall attach rate, we believe there are enough encouraging trends from the quarter (particularly around profitability) for investors to feel positive coming away from the quarter," Mizuho's Siti Panigrahi said in a note to clients.

Chief Financial Officer Jeff Hoffmeister said in Shopify's earnings materials that the company grew volume, revenue and gross profit, "all amidst a mixed consumer spend environment," while continuing to win market share and growing its margin of free cash flow.

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Looking to the third quarter, Shopify models a revenue growth rate in the low- to mid-20s. The FactSet consensus of $2.07 billion implies expectations for about 21% growth.

The company expects a similar free-cash-flow margin to the 16% one seen in the second quarter.

-Emily Bary

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08-07-24 1110ET

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