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E-commerce software platform Shopify (NYSE:TSX:SHOP) beat analysts' expectations in Q2 CY2024, with revenue up 20.7% year on year to $2.05 billion. It made a non-GAAP profit of $0.26 per share, improving from its profit of $0.14 per share in the same quarter last year.
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Shopify (SHOP) Q2 CY2024 Highlights:
- Revenue: $2.05 billion vs analyst estimates of $2.01 billion (1.7% beat)
- EPS (non-GAAP): $0.26 vs analyst estimates of $0.20 (29.1% beat)
- Gross Margin (GAAP): 51.1%, up from 49.3% in the same quarter last year
- Free Cash Flow of $333 million, up 43.5% from the previous quarter
- Gross Merchandise Volume ("GMV"): $67.2 billion, up 22% year on year
- Gross Payment Volume ("GPV"): $41.1 billion, up 30% year on year
- Market Capitalization: $69.93 billion
Originally created as an internal tool for a snowboarding company, Shopify (NYSE:SHOP) provides a software platform for building and operating e-commerce businesses.
E-commerce SoftwareWhile e-commerce has been around for over two decades and enjoyed meaningful growth, its overall penetration of retail still remains low. Only around $1 in every $5 spent on retail purchases comes from digital orders, leaving over 80% of the retail market still ripe for online disruption. It is these large swathes of the retail where e-commerce has not yet taken hold that drives the demand for various e-commerce software solutions.
Sales GrowthAs you can see below, Shopify's 26.3% annualized revenue growth over the last three years has been solid, and its sales came in at $2.05 billion this quarter.
This quarter, Shopify's quarterly revenue was once again up a very solid 20.7% year on year. On top of that, its revenue increased $184 million quarter on quarter, a strong improvement from the $283 million decrease in Q1 CY2024. This is a sign of acceleration of growth and very nice to see indeed.
Looking ahead, analysts covering the company were expecting sales to grow 20.3% over the next 12 months before the earnings results announcement.
Cash Is KingAlthough earnings are undoubtedly valuable for assessing company performance, we believe cash is king because you can't use accounting profits to pay the bills.
Shopify has shown impressive cash profitability, driven by its cost-effective customer acquisition strategy that gives it the option to invest in new products and services rather than sales and marketing. The company's free cash flow margin averaged 16.6% over the last year, better than the broader software sector.
Shopify's free cash flow clocked in at $333 million in Q2, equivalent to a 16.3% margin. This quarter's result was good as its margin was 10.6 percentage points higher than in the same quarter last year. We hope the company can build on this trend.
Over the next year, analysts predict Shopify's cash conversion will slightly fall. Their consensus estimates imply its free cash flow margin of 16.6% for the last 12 months will decrease to 15%.
Key Takeaways from Shopify's Q2 Results It was encouraging to see Shopify top analysts' revenue and EPS expectations this quarter, driven by better-than-anticipated gross merchandise and payment volume. We were also glad it expects its revenue growth to accelerate into the mid-to-low 20% range and its gross margin to expand in Q3, displaying the operating leverage inherent in the business. Zooming out, we think this was a good quarter, showing the company is staying on target. The stock traded up 17.3% to $63.60 immediately after reporting.
