Shopify (Nasdaq: SHOP) shares were mostly unchanged following the company's Q2 report. Overall, it was a strong report as the company topped estimates on the top and bottom-line. However, the one negative was a deceleration in gross merchandise volumes (GMV). Most likely, this is simply a "correction" from the surge in online sales during the pandemic as the world slowly returns to normal.
Inside the Numbers
In Q2, Shopify reported earnings per share of $2.24 which significantly exceeded analysts' estimates of $0.97 per share. It was a 114% increase from last year's Q2. Revenue increased by 57% to $1.12 billion, also topping estimates of $1.04 billion.
Subscription solutions accounted for $334 million in revenue, a gain of 70%. Merchant solutions contributed the bulk of revenue and came in at $785 million, a 52% increase from last year's Q2.
GMV for Q2 was $42.2 billion, a 40% increase from last year but it continued the trend of deceleration in terms of gross merchandise volume. Last quarter, it increased by 89% and 119% in Q4. Most analysts are attributing the deceleration to tougher comps as Shopify's revenue surged in Q2 of 2020 when the bulk of shutdowns took effect, leading to an increase in online shopping.
This slowdown in growth has been evident in the reports of many online companies such as Twitter (Nasdaq: TWTR), Pinterest (Nasdaq: PINS), and Amazon (Nasdaq: AMZN). Shopify added 85,000 merchants in Q4 which was less than expectations of 145,000 additions.
The company expects higher costs in the second-half of 2021 as it invests in building out its fulfillment and distribution network to better compete with the legacy, e-commerce companies.
Stock Price Outlook
Shopify has been one of the best-performing stocks over the past decade, and its business and stock price further accelerated as a result of the pandemic. So, some loss of momentum should be expected. Further, the market's placid reaction makes clear that this should be expected.
In fact, the stock price is little changed over the past six months, while it continues to grow impressively in terms of earnings and revenue. Investors should continue buying the stock on weakness. Although, its growth will likely slow, it will certainly continue to grow along with overall online shopping given that its become a major part of the ecosystem.