A month has gone by since the last earnings report for Shopify (SHOP). Shares have added about 2% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Shopify due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

Shopify Q3 Earnings Beat Estimates, Revenues Up Y/Y

Shopify reported third-quarter 2024 non-GAAP earnings of 36 cents per share, beating the Zacks Consensus Estimate by 33.33%. SHOP reported earnings of 24 cents per share in the year-ago quarter.

Revenues of $2.16 billion surpassed the Zacks Consensus Estimate by 2.59%. The top line soared 26.1% year over year.

Shopify has diversified its Payments product offerings through an expanded partnership with PayPal.

SHOP’s Top Line Rides on Growing Merchant Base

Shopify is benefiting from strong growth in its merchant base. Merchant-friendly tools like Shop Pay, Shopify Payments, Shopify Collective, Shopify Audiences, Shopify Capital and Shop Cash offers are helping it win new merchants amid a challenging economic environment. Its continued efforts to streamline operations have been attracting both new, smaller merchants and established, large brands to the platform.

Merchant solutions revenues in the third quarter were $1.55 billion, comprising 71.8% of Shopify’s total revenues. On a year-over-year basis, merchant revenues increased 26.4%.

Shopify has been investing in developing the best solutions for modern e-commerce. Product offerings include Shop Pay, Bill Pay, Tax Platform, Collective and the Marketplace Connect app. Integration of AI through Shopify Magic across products and workflows is helping merchants expand their footprint. Shopify Checkout is helping merchants offer secure and seamless checkout options for customers.

Subscription solutions revenues in the third quarter were $610 million, comprising 28.2% of Shopify’s total revenues. On a year-over-year basis, subscription solutions revenues increased 25.5%. The growth was driven by an increase in the number of merchants on SHOP’s platform.

Gross Merchandise Volume (GMV) in the third quarter was $69.7 billion and increased 24% year over year. The growth was driven primarily by the increase in offline locations. The reported quarter saw major retailers like Orlebar Brown, AKIRA, and Billy Reid adopt SHOP’s point-of-Sale solution. In Canada, women’s fashion retailer Laura migrated the point-of-sale systems of their over 130 stores to Shopify.

In the third quarter of 2024, Shopify also signed enterprise-level brands like Reebok, Lions Gate Entertainment and Hanes.

Monthly Recurring Revenue (MRR) in the third quarter was $175 million and increased 27.7% on a year-over-year basis.

SHOP’s Operating Expenses Rise Y/Y

In the third quarter of 2024, total operating expenses were $835 million, up 7.2% from the prior-year quarter. As a percentage of revenues, the figure contracted to 38.6% from 45.4% in the year-ago quarter.

Sales & Marketing (S&M) expenses increased 12.2% year over year to $331 million. As a percentage of revenues, S&M expenses decreased 190 basis points (bps) year over year to 15.3%

Research & Development (R&D) expenses increased 6.1% year over year to $332 million. As a percentage of revenues, R&D expenses decreased 290 bps year over year to 15.4%.

General & Administrative (G&A) expenses decreased 16.8% year over year to $114 million. As a percentage of revenues, G&A expenses decreased 2.7% to 5.3%.

Consequently, SHOP reported an operating income of $283 million compared with an operating income of $122 million reported in the prior-year quarter.

SHOP’s Balance Sheet Details

As of Sept. 30, 2024, cash and cash equivalents (including marketable securities) totaled $4.9 billion, which decreased from $5.02 billion as of June 30, 2024.

Long-term debt stood at $1.12 billion, unchanged from the figure reported at the end of the prior quarter.

SHOP’s Q4 Guidance Positive

For the fourth quarter of 2024, Shopify expects revenues to grow at a mid-to-high twenties percentage rate on a year-over-year basis.

Shopify expects GAAP operating expenses as a percentage of revenues to be 32% - 33%.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in fresh estimates.

The consensus estimate has shifted 14.57% due to these changes.

VGM Scores

At this time, Shopify has a nice Growth Score of B, however its Momentum Score is doing a bit better with an A. However, the stock was allocated a grade of F on the value side, putting it in the lowest quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise Shopify has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.

Performance of an Industry Player

Shopify is part of the Zacks Internet - Services industry. Over the past month, Alphabet (GOOGL), a stock from the same industry, has gained 9.2%. The company reported its results for the quarter ended September 2024 more than a month ago.

Alphabet reported revenues of $74.55 billion in the last reported quarter, representing a year-over-year change of +16.4%. EPS of $2.12 for the same period compares with $1.55 a year ago.

For the current quarter, Alphabet is expected to post earnings of $2.12 per share, indicating a change of +29.3% from the year-ago quarter. The Zacks Consensus Estimate has changed +0.1% over the last 30 days.

Alphabet has a Zacks Rank #3 (Hold) based on the overall direction and magnitude of estimate revisions. Additionally, the stock has a VGM Score of B.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

Shopify Inc. (SHOP) : Free Stock Analysis Report

Alphabet Inc. (GOOGL) : Free Stock Analysis Report

To read this article on Zacks.com click here.

Zacks Investment Research