Factors to Consider Ahead of Shopify (SHOP) Q2 Results

Shopify SHOP is expected to report its second quarter 2019 results on August 1.

The company’s second-quarter results are expected to benefit from an expanding diversified merchant base and a rapidly growing presence in international markets.

However, Shopify is increasing its investments in innovative product development to help merchants improve their business processes amid high competition in the e-commerce market. This should weigh on profitability in the short term.

Click here to find out what the company’s overall performance is expected to be in the second quarter.

International expansion initiatives to boost revenue

In an effort to make the platform more merchant-friendly internationally and strengthen the base of Shopify Plus merchants using Shopify Payments, the company recently rolled out “multi-currency functionality.” This feature will allow merchants to sell products in multiple currencies and receive payments in their respective local currency. Therefore, this is expected to drive the gradual adoption of the “all-new Shopify Plus”.

Additionally, in the second quarter, the company introduced Shopify Payments in the Netherlands, which bodes well for revenue growth.

Additionally, Shopify has recently been working on expanding language capabilities beyond English. The focus on local languages helps the company strengthen its international presence.

Recently, the company announced the availability of local language features in Hindi, Danish, Dutch, Simplified Chinese, Traditional Chinese, Finnish, Norwegian, Korean, Thai, Swedish and Malay, bringing the total number of accessible languages to 19.

Notably, the Shopify platform already includes functionality in English, Brazilian, Portuguese, Japanese, German, Spanish, French and Italian.

We believe these inclusive initiatives will strengthen engagement and significantly increase adoption in the future. In the first quarter results release, management noted that more than 0.1 million merchants use the platform in languages other than English, which is a key enabler.

Shopify Inc. Price and Consensus

Shopify Inc. Price Consensus Chart | Shopify Inc. Quote

Rising spending amid competition presents a mixed picture in the short term

Strong competition from Amazon AMZN, eBay, Square SQ, Facebook’s FB Instagram Checkout, among others, poses a headwind for Shopify.

In a bid to maintain its competitive position in the e-commerce market, Shopify is increasing its investments in product development, infrastructure and platform. These factors will likely limit margin expansion in the near term.

In fact, at the Shopify Unite conference, the company rolled out Shopify Fulfillment Network in the US for the first time, to make commerce easier. Reportedly, the company is investing $1 billion in developing the latest distributed distribution network.

Notably, Shopify Fulfillment Network aims to improve business processes for merchants. It uses robust machine learning (ML)-based inventory allocation technologies to enable merchants to avoid additional shipping costs.

By ensuring optimized use of space and time, retailers can manage stock and inventory accordingly. Additionally, consumers can benefit from faster delivery. This should attract more merchants to the Shopify platform.

Although the distributed network will make it easier for merchants to expand in the future, it is likely to weigh on the bottom line, at least in the short term.

Zacks Rank

Currently, Shopify carries a Zacks Rank #4 (Sell).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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