Shopify Inc

Shopify Inc (TSX: SHOP) is a software & computer services company, offering multi-channel commerce and cloud-based platform to small and medium businesses. The Group also offers merchant solutions and subscription solutions. SHOP’s platform also include checkout system optimised for mobile devices, which enable customers to buy products from mobile Websites.

Financial Highlights – Q1 Financial Year 2020 (31^st March 2020, USD, thousand)

(Source: Quarterly Report, Company Website) 

In the first quarter of the financial year 2020, driven by an increase in the revenue from merchant solutions and subscription solutions for the period, the revenue surged to USD 470,001 thousand as against USD 320,482 thousand in Q1 FY2019. The gross profit surged from USD 180,291 thousand in Q1 of the financial year 2019 to USD 256,950 thousand in Q1 FY2020. Due to an increase in the operating expenses for the period, the group reported an operating loss of USD 73,233 thousand in Q1 FY2020 versus an operating loss of USD 35,790 thousand in Q1 FY2019. The LBT (loss before tax) stood at USD 60,124 thousand in Q1 FY2020 versus an LBT (loss before tax) of USD 24,151 thousand in Q1 FY2019. The net loss stood at USD 31,429 thousand in Q1 FY2020 versus a net loss of USD 24,151 thousand in Q1 FY2019.

Share Price Performance

Daily Chart as of 16^th June 2020, before the market close (Source: Refinitiv, Thomson Reuters)

Shopify Inc shares were trading at CAD 1,086.29 at the time of writing before the market close on 16^th June 2020. Stock's 52 weeks High is CAD 1,206.08 and Low is CAD 370.45.

Conclusion

The Company continues to implement the strategy and business model to deliver returns. The Group, through its wide-ranging scope, had accelerated growth organically and through acquisitions and strategic partnerships. The Company has shown a decline in financial performance in the first quarter of the financial year 2020. The top-line performance has improved, while the bottom-line performance has declined significantly and remained in the negative zone for the period. The revenue from core operations has increased for the period. The Group has launched several initiatives such as an extended free trial for 90-day for all standard plan, gift card capabilities and pick-up and delivery to support merchants in challenging time. The Company has also increased funding commitment of USD 200 million for remaining 2020 to increase Shopify Capital funding in the US market and expand in the Canadian and UK markets. The Group operations are impacted by the outbreak of covid-19 pandemic and have been focusing on strengthening its balance sheet and return with capital discipline and reducing its costs.

Based on the above rationale, we have given a “Hold” recommendation at the closing price of CAD 1,086.29 (as on 16^th June 2020).

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