What a Quarter!! Uh oh. Canadian-based Shopify (SHOP) went to the tape with another outstanding quarter on Wednesday morning. First, a quick refresher for the new kids. Shopify, in a way, competes with Amazon (AMZN) and Walmart (WMT) for e-commerce dollars. Shopify sets up websites for small business owners, and partners with them to handle some of the things that are hard for small businesses to either find time to do themselves or afford adding qualified payroll to take care of... such as running digital payments and shipping. Shopify has also become involved in business lending as the pandemic has had an outsized impact on small businesses in general.
For the firm's fourth quarter, Shopify really hit the ball out of the park, posting adjusted EPS of $1.58, and GAAP EPS of $0.99, both numbers easily cruising well above expectations. The firm generated $977.74 million in revenue over the three months, also well above consensus and good enough for 93.6% year over year growth. FYI, and this will matter in a couple of paragraphs... this was the third consecutive quarter of revenue growth in the mid-90%'s for Shopify. Prior to the pandemic, revenue growth regularly printed in the mid to high 40%'s.
Inside the Numbers
This gets really impressive. Gross Merchandise Volume (simply GMV when you see it in the future) grew 99% to $41.1 billion, besting estimates down around $38 billion. This follows Q2 growth of 119% and Q3 growth of 109%. Gross Payments Volume which accounts for 46% of GMV grew to $19.1 billion.
Quarterly Merchant Solutions increased by 117% to $698.3 million, while subscription solutions grew 53% to $279.4 million, and monthly recurring revenue expanded 11% to $82.6 million. Adjusted gross margin landed at 52.2% of sales, slightly below Q4 2019, but ahead of consensus, while adjusted operating margin printed at 20.5%, which crushed the 15.6% that Wall Street was looking for, and soared well beyond the 5.6% performance of one year ago.
Ever get beaten up by someone you couldn't handle? I don't care who you are. There's always someone you didn't see coming. Not only is it scary, it's kind of shocking and leaves one unnerved. For a while. That's what is happening to Shopify this morning. The reason behind the Wednesday morning selloff is plain to see.
Taken from the firm's press release... "We expect that we will continue to grow revenue rapidly in 2021, albeit at a lower rate than in 2020. While we expect that the first quarter will likely still contribute the smallest share of full-year revenue and the fourth quarter the largest, the revenue spread may be more evenly distributed across the four quarters than it has been historically if the rollout of a vaccine shifts more spending to services and offline shopping towards the back half of the year."
Quite a mouthful. Starts out sounding confident and ends up reading like a warning. Algos hate warnings. Hate them.
Can We Buy This Dip?
Though this selloff feels large, one must consider where the name has come from. SHOP experienced a long basing period of consolidation from July through mid December. That said, the low of late November managed to evolve into a turning point that now looks to me like a classic Pitchfork model. This week SHOP came in with the shares in a technically overbought condition, evidenced by both the Relative Strength Index (RSI) and the daily MACD.
All this selloff really does is reveal sharp resistance at the central trendline of the Pitchfork, the Pitchfork itself is not even close to broken, and will not be unless the shares were to drop significantly further and threaten the 50 day SMA all the way down at $1194.
My opinion is that traders with a short time horizon can buy this dip and then be a little agile as analytical opinion pours in. For investors less likely to stay on top of their positions as an active trader might, I think you might have to respect Jim Cramer's three day rule and see where the stock is trading on Friday or Monday. I am probably going to day-trade this name this afternoon. But I'll watch it minute by minute.