Earnings Preview: Slow sales and high costs remain a concern for Shopify in Q3

Shopify Inc. (SHOP) is set to report third quarter 2018 earnings results on Thursday, October 25. Analysts expect the company to report a loss of $0.02 per share on revenues of $257 million. The company has consistently topped expectations over the past four quarters and can be expected to stay on track to beat them this time too.

For the third quarter, Shopify provided an outlook for revenues of $253 million to $257 million and for the full year of 2018, the company’s revenue guidance is in the range of $1.01 billion to $1.02 billion.

In the second quarter of 2018, the company’s revenues grew 62% year-over-year to $245 million while adjusted EPS stood at $0.02. Reported net loss was $24 million or $0.23 per share. Subscription Solutions revenue grew 55%, driven by growth in monthly recurring revenue (MRR).

Consistent recurring revenue increases in the subscription segment can be an indicator of underlying strength. The recurring revenue growth is expected to continue in the third quarter as well which can be taken as a positive sign.

Shopify swings to a surprise profit in Q2 on strong revenues

Shopify’s slowing sales growth, continued losses and high costs remain a concern. The company is investing significantly in expanding into new markets. Shopify is also looking at opening brick-and-mortar stores and opened its first one in Los Angeles last week. Depending on the performance of this store, we can expect to see some initiatives going forward.

Looking ahead, Shopify is expected to benefit from the growth in ecommerce. The stock gained 27% thus far this year but looking at the past three months, the stock has dropped 24%. The slowdown in sales growth has impacted shares negatively. If the company tops expectations for the third quarter, the stock is expected to see a pickup.

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