Shopify SHOP continued to benefit from the rise of e-commerce in the small and mid-sized business niche. By issuing strong and better than expected fourth quarter results and upping its profit guidance for the whole 2020, its stock went up 7.8 % on Wednesday, hitting a new 52-week high. Enabling small businesses to sell goods and services directly to customers online seems to be a good business indeed.
Strong Fourth Quarter
Earnings and revenue have easily topped the Zacks Consensus Estimate, and holiday sales jumped 61% from prior year's holiday period reaching $2.9 million. Net income of $800,000, or a penny per share, on revenue of $505.2 million which is up 47% from a year ago. Analysts expected revenue of $482 million.
Non-GAAP earnings were 43 cents per share, as opposed to Wall Street's 24 cents per share expectation. As for merchant solution alone, revenue rose 53% to $322 million in the latest quarter. Subscription business also increased 37% as revenues amounted to $183 million. The company reported 1,069,000 merchants were present on its platform at the end of fiscal 2019.
Only to think that five years ago, this platform had 144,000 merchants, quite far from one million it has now. Overall, what a great success story. But what ultimately drove the stock up is the upbeat 2020 revenue guidance.
2020 Guidance
The company's full-year outlook exceeded analysts' expectations of $2.11 billion at consensus as it expects revenue to be in the range from $2.13 billion to $2.16 billion. This positive outlook has fuelled investor optimism in both the company's short- and long-term growth prospects. But even before the latest earning report was released, its stock did quite well. It has soared about 34% year-to-date compared to the S&P 500's which gained only 4.7%
Unlike Bed Bath & Beyond BBBY whose results has shown the company is still severely struggling, the retail tech specialist has a clear horizon ahead- and not just for the upcoming year. In 2019, the company's focus was on three key investments in 2019: its purchase of warehouse automation and industrial robotics startup 6 River Systems, the launch of the Shopify Fulfillment Network, and international expansion. This approach will continue throughout 2020 as Shopify takes on its rivals Amazon.com, Inc. AMZN and eBay Inc EBAY.
Outlook
Shopify is currently building out its AI-powered fulfillment network, which will see the company spend $1 billion over the next five years as part of the investment in automating processes in retail. As it continues to add partners and optimize the network, it is reportedly seeing strong interest from merchants after it bought 6 River Systems, a warehouse automation and robotics startup.
The sights are all set and clear, Shopify is going for a broad international expansion. To get there, it will rely on an ecosystem of partners as it offers purpose built commerce apps to international markets. Throughout 2020, the online platform will further increase its investment in this ecosystem: both on the developer and partner ends. And this latest quarter surely was a milestone for the company promising good winds are ahead on this journey.
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