Shopify Inc.

Shopify Inc. (TSX: SHOP), offers cloud-based, e-commerce platform for small and medium-sized businesses. The group operates in two segments: subscription solutions and merchant solutions. The Company's software is used by merchants to run their business across all sales channels, including Web and mobile storefronts, physical retail locations, social media storefronts and marketplaces.

Key highlights 

• Consistent revenue growth: The company is continuously showing a spirited performance across the revenue segments. Total revenue for the full year 2020 was USD 2,929.5 million, an 86% increase over 2019. Within this, Subscription Solutions revenue grew 41% to USD 908.8 million, while Merchant Solutions revenue grew 116% to USD2,020.7 million. 

Source: Company 

• Improved operating leverage: The company hasdemonstrated tremendous resiliency and performed very well in a challenging operating environment, where they are consistently improving its operating leverage. On the back of this disciplined financial management the company is riding on strong revenue growth.

Source: Company 

• Rising monthly recurring revenue (MRR): The company witnessed a healthy growth of 53% in MRR to USD 82.6 million in Q4 2020, against USD 53.9 million in Q4 2019. The rise in MRR was continued high number of new merchants joining the platform, further it also benefited from incremental new revenue from its Retail POS Pro subscription offering. 

Source: Company 

• Robust GMV: In the recent past, the company sustained strong momentum in GMV. During 4Q 2020 the company had strong momentum in GMV, which stood at USD 1 billion, increase by 99% over the Q4 2019, buoyed by restrictions related to COVID-19, as consumers increasingly looked for ways to purchase at a safe distance, utilizing e-commerce and benefiting from features such as pickup and local delivery.

Source: Company 

Financial overview of Q4 2020

Source: Company 

• Total revenue in the fourth quarter was USD 977.7 million, a 94% increase from the comparable quarter in 2019. The rise in revenue was primarily due to healthy performance from Subscription Solutions and Merchant Solutions.
• Gross profit in Q4 2020 increased 91% to USD 504.4million, compared to USD 263.9 million in Q4 2019.
• Operating income in the reported quarter stood at USD 112.5 million, or 12% of revenue, versus a loss of USD 30.1 million in the previous corresponding period.
• The company reported net income of USD 123.9 million in Q4 2020, compared to a net income of USD 0.8 million in Q4 2019.
• On December 31, 2020, the company had USD 6.39 billion in cash, cash equivalents and marketable securities, compared with USD 2.46 billion on December 31, 2019. 

Risks associated with investment

The company is exposed to a variety of risks, including foreign currency exchange fluctuations, changes in interest rates, concentration of credit and inflation and technological risk. 

Stock recommendation

2020 was an exceptional year of revenue growth and adjusted operating income for Shopify driven by the unprecedented acceleration of eCommerce by COVID-19, which drove an acceleration in the growth of GMV and new merchants on the platform, which increased adoption of merchant solutions. Meanwhile, the company also announced three partnerships to bring thousands of small businesses online and help them adapt to a digital economy. The company’s collaborations include the Government of Canada through the ‘Go Digital Canada’ program, the New York State Government through ‘Empire State Digital’, and the Victoria State Government in Australia through the ‘Small Business Adaptation Program’. Going forward, we expect the company’s revenue to improve further as more business are likely to go digital. Therefore, based on the above facts, we recommend a “HOLD” rating to the stock at the closing price of CAD 1572.49 on February 25, 2021.

Source: Refinitiv (Thomson Reuters)

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