Shopify (NYSE:SHOP) Q2: Beats revenue, shares rise 17.3%

E-commerce software platform Shopify (NYSE:SHOP) beat analysts’ expectations in Q2 CY2024, with revenue growing 20.7% year-over-year to $2.05 billion. Non-GAAP earnings were $0.26 per share, an improvement from earnings of $0.14 per share in the same quarter last year.

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“Our second quarter results clearly demonstrate that Shopify is rapidly expanding its position as a leader in powering global commerce and entrepreneurship,” said Harley Finkelstein, CEO of Shopify.

Originally created as an internal tool for a snowboarding company, Shopify (NYSE:SHOP) is a software platform for building and running an e-commerce business.

E-commerce software

While e-commerce has been around for over two decades and is enjoying significant growth, its overall retail penetration remains low. Only about $1 in every $5 spent on retail purchases comes from digital orders, leaving over 80% of the retail market still ripe for the online revolution. It is these large areas of retail where e-commerce has yet to take hold that are driving demand for various e-commerce software solutions.

Increase in sales

As you can see below, Shopify’s 26.3% year-over-year revenue growth over the past three years was solid, and the company’s sales for the quarter were $2.05 billion.

This quarter, Shopify’s quarterly revenue grew again by a very solid 20.7% year-over-year. Additionally, revenue grew by $184 million quarter-over-quarter, a significant improvement from the $283 million decline in Q1 CY2024. This is a sign of accelerating growth and is really good to see.

Analysts covering the company had expected sales to rise by 20.3% over the next 12 months, ahead of the financial results announcement.

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Money is everything

While profits are undoubtedly valuable when assessing a company’s performance, we believe cash is most important because accounting profits cannot be used to pay bills.

Shopify has demonstrated impressive cash profitability, driven by a profitable customer acquisition strategy that allows it to invest in new products and services rather than sales and marketing. The company’s free cash flow margin averaged 16.6% over the past year, better than the broader software sector.

Shopify’s free cash flow was $333 million in Q2, representing a margin of 16.3%. The quarter’s result was strong, as the margin was 10.6 percentage points higher than in the same quarter last year. We hope the company can capitalize on this trend.

Analysts predict that Shopify’s cash conversion will decline slightly over the next year. Their consensus estimates suggest that its free cash flow margin of 16.6% over the past 12 months will narrow to 15%.

Key takeaways from Shopify’s second-quarter results

We were pleased to see Shopify meet analyst expectations for revenue and EPS this quarter, driven by better-than-expected gross merchandise value and payment volume. We were also pleased to see it expect revenue growth to accelerate to the mid- to low-20% range and gross margin growth in Q3, which demonstrates the operating leverage inherent in the business. Going forward, we think it was a strong quarter, showing the company is on target. Shares rose 17.3% to $63.60 immediately after the report.

Is Shopify worth investing in right now? When making this decision, it’s important to consider its valuation, its business characteristics, and what’s happened in the last quarter. We’ve covered that in our full research report, which you can read here , it’s free.