Shopify Inc (TSX:SHOP): Earnings Incoming!

Shopify (TSX:SHOP)(NYSE:SHOP) is expected to release earnings on July 28 before the market opens. It’s going to be the most highly anticipated TSX earnings release of the year. In Shopify’s Q2 earnings, investors will get a peek at how the company is doing in the post-COVID-19 era. Shopify’s Q1 earnings were a huge beat, with 110% revenue growth and positive GAAP earnings. But many are expecting the company’s revenue growth to decelerate with COVID-19 passing into the rearview mirror. In this article, I’ll give a sneak preview of what analysts are expecting from SHOP’s Q2 earnings and whether investors can expect another beat.

What analysts are expecting

For the second quarter, analysts are expecting Shopify to report $0.23 in diluted EPS. It reported about the same amount in the same quarter a year before. The second quarter of 2020 was the first quarter Shopify reported that included the “COVID boost” — that is, the higher sales that e-commerce companies got because of the COVID-19 pandemic. Thanks to COVID lockdowns, retail stores were forced to close, which sent e-commerce sales higher. In Q2 2020, that caused a massive spike in Shopify’s revenue, which rose 97% year over year. In Q2 2021, Shopify will need to beat a quarter that already had the COVID boost in the equation. That creates base effects that will make future growth harder.

Additionally, some analysts expect that Shopify’s revenue growth will decelerate because of the pandemic slowing down. As mentioned already, retail closures were a huge tailwind for Shopify in 2020, causing sales to spike. In the second quarter of 2021, lockdowns are on their way out. So, Shopify vendors may face more competition from brick-and-mortar stores than they did last year. If that happens, then revenue growth will probably decelerate — if not outright decline.

Will SHOP defy the experts again?

Broadly, analysts are expecting tepid EPS results from SHOP in the second quarter. $0.23 is virtually unchanged year over year and is lower than the $0.34 that SHOP reported in Q1. If analysts are right, then Shopify’s second-quarter earnings will probably be somewhat disappointing to investors.

But analysts are wrong all the time. In its previous two quarters, SHOP beat earnings estimates, thanks to the unexpected sales surge brought on by COVID-19. It does look like the pandemic is on the way out, but that doesn’t mean that Shopify vendors are going to go out of business. While they were busy making quick sales in 2020, Shopify’s vendors were also building customer relationships and brand awareness. Perhaps they picked up a few customers who’ll be shopping online for the foreseeable future. If that’s the case, then Shopify could remain on a bullish trajectory.

Foolish takeaway

SHOP is one stock with a habit of defying the naysayers. It has been the victim of short attacks and smear campaigns and has always emerged from the drama bigger and better. So far, it looks like analysts aren’t expecting much from SHOP in Q2. But that’s no reason to count it out. The stock has never been a Wall Street favourite, yet it has delivered superior returns. Personally, I’m expecting good things from it in the second quarter.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Andrew Button has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Shopify. The Motley Fool recommends the following options: long January 2023 $1,140 calls on Shopify and short January 2023 $1,160 calls on Shopify.

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