Taking a look at the headline numbers, EPS came in at $0.09, easily surpassing the ($0.05) consensus, with revenue surging by 50% yr/yr to $320.5 mln, also beating the $310.1 mln expectation. Looking ahead, the company is forecasting Q2 revenue of $345-$350 mln (+42% at mid-point), above the $342.7 mln consensus.
For FY19, it issued in-line revenue guidance of $1.48-$1.50 bln, but it sharply raised its adjusted operating income outlook to $20-$30 mln from $10-$20 mln.
To access its earnings press release, click here.
Since going public in 2015, SHOP has exceeded analysts' revenue and EPS expectations every time. Furthermore, its revenue growth has remained robust, even as it has grown into a $1 bln+ company. In fact, last quarter its management stated that no other SaaS company generating revenue of $1 bln or more has ever grown at the 50%+ rates it is currently achieving.
This combination of consistently delivering better-than-expected quarterly results and strong, industry-leading revenue growth has made SHOP a premier growth stock, translating into an amazing 1,290% gain vs. its IPO price. It has also translated into a meteoric valuation with shares trading at 17x forward sales.
That leaves little-to-no margin for error, but based on its Q1 results, it is clear that momentum underlying its business remains firm.
From a general perspective, a primary catalyst that has been driving growth has been the powerful shift occurring in the retail as space as more businesses move towards e-commerce, seeking to become omni-channel companies. This trend has been seen throughout the earnings season as many companies report strong growth in digital channels.
A couple key operating metrics for SHOP illustrate this transition. For instance, gross merchandise volume (GMV) increased by 50% in Q1, following 54% growth last quarter. Additionally, monthly recurring revenue (MRR) was higher by 36%, steady with last quarter's 37% growth rate.
But SHOP isn't simply benefiting from bullish trends. It has become a force in the cloud software business development industry by aggressively investing in its business through new product features and services, as well as through international expansion.
One of its most important initiatives has been to build out and grow its Shopify Plus solution. Shopify Plus offers its core services but also includes add-ons like apps such as Script, Launchpad, and Flow. Additionally, users have access to a dedicated point-of-contact and up to nine separate platforms to accommodate different currencies or locations. As an enhanced offering, Plus carries a higher price point.
As the company has focused on driving growth for Shopify Plus, it has become a larger portion of its overall business. For Q1, it contributed $11.3 mln, or 26% of MRR, compared to 22% in the year ago quarter.
While SHOP's growth has been spectacular, there has been some grumbling regarding its slow pace towards stronger profits -- especially given the astronomical valuation. However, SHOP raised its adjusted operating income guidance for the year, which is a major reason we are seeing the stock spike higher today.
Key Takeaways: Heading into its earnings report, the company had a high hurdle to clear, and it did so with relative ease. SHOP is firing on all cylinders and it is even expecting to make solid progress in operating profits this year, while revenue growth remains at high levels. There is very little to complain about here, other than its exorbitant valuation. Even that seems justified, though, given its track record of easily beating expectations and delivering high double-digit revenue growth.