Morningstar | Shopify Executes for a Positive Fiscal 3Q; Maintaining Our $150 FVE
Shopify reported a durable fiscal third-quarter 2018, exceeding our revenue and guidance assumptions. We are maintaining our $150 per share fair value estimate and CAD 197 per share fair value estimate. Total revenue expanded nearly 58% year-over-year, Shopify’s gross merchandising volume grew 55% year over year, and the firm posted positive operating cash flow. We believe the global shift to eCommerce remains a long-term secular trend. Even as the firm faces competition, we continue to believe Shopify’s ability to provide a multichannel front end and integrated back end as supportive of the firm’s narrow economic moat.Coming in to the quarter there was a great deal of noise, perhaps most notably around Amazon’s announcement of Amazon Storefronts, which allows smaller merchants to sell through its platform. As a reminder, Amazon shut down its Webstore Platform in 2015, but Storefronts represents a very similar initiative that targets small-to-medium-size businesses, or SMBs, that might traditionally utilize Shopify. We will be tracking the impact of Storefronts on Shopify’s growth going forward, but note that in the past, SMBs have been reluctant to partner with a company like Amazon that essentially serves as a direct competitor to their respective businesses. Second, there were concerns that Shopify would be caught in the cross-fires around the Trump administration and Amazon feud over the USPS, but nothing concrete has transpired to change the status quo.
Ultimately, the results and the guidance raise demonstrate that the business can continue to execute. However, we still believe the firm warrants a very high uncertainty rating due to these risks, even as the firm increases its enterprise exposure.
A highlight of the quarter was Canadian cannabis sales, which management called out as a growth driver for the future. Merchants are using Shopify’s platform to sell cannabis online, as the firm inked partnerships with Canopy Growth and Aurora Cannabis.
We believe that as Shopify becomes the platform for a regulated industry like cannabis, there is potential to leverage Shopify’s scale to service other regulated industries globally.
Shopify provides a cloud-based commerce platform designed for small and medium-sized businesses. Merchants use its software to run their business across all of their sales channels, including web, tablet and mobile storefronts, social media storefronts, and brick-and-mortar and pop-up shops. Co. provides a platform for merchants to create an omni-channel experience that helps showcase the merchant's brand and grow its business. Co.'s platform provides merchants with a single view of their business and customers across all of their sales channels and enables them to manage products and inventory, process orders and payments, build customer relationships and leverage analytics and reporting.
Morningstar, Inc. is a leading provider of independent investment research in North America, Europe, Australia, and Asia. The company offer an extensive line of products and services for individual investors, financial advisors, asset managers, and retirement plan providers and sponsors.
Morningstar provides data on approximately 530,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on more than 18 million equities, indexes, futures, options, commodities, and precious metals, in addition to foreign exchange and Treasury markets. Morningstar also offers investment management services through its investment advisory subsidiaries and had approximately $185 billion in assets under advisement and management as of June 30, 2016.
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