Shopify (NYSE:SHOP) is set to report second-quarter 2019 results on Aug 1.
The company’s second-quarter results are likely to benefit from a diversified merchant base that is expanding, and rapidly growing presence in international markets.
However, Shopify is increasing investments on development of innovative products to aid merchants enhance business processes amid stiff competition in the ecommerce market. This is anticipated to weigh on profitability in the near term.
Click here to know how the company’s overall Q2 performance is expected to be.
International Expansion Initiatives to Drive Top Line
In a bid to make the platform more merchant friendly internationally and bolster Shopify Plus merchant base utilizing Shopify Payments, the company recently rolled out “a multi-currency feature.” This feature will enable merchants to sell products in several currencies and receive payments in their respective local currency. Consequently, this is expected to boost incremental adoption of “all-new Shopify Plus.”
Moreover, in the second quarter, the company introduced Shopify Payments in the Netherlands, which bodes well for revenue growth.
Further, Shopify has been working on extending language capabilities beyond English lately. The focus on local languages is helping the company in bolstering international presence.
Recently, the company announced availability of local language capabilities in Hindi, Danish, Dutch, Simplified Chinese, Traditional Chinese, Finnish, Norwegian, Korean, Thai, Swedish, and Malay, taking total languages accessible to 19.
Notably, Shopify platform already includes English, Brazilian, Portuguese, Japanese, German, Spanish, French, and Italian language capabilities.
We believe these inclusive initiatives will boost engagement and considerably increase adoption going forward. In the first-quarter earnings release, management noted that more than 0.1 million merchants utilize the platform in languages other than English, which acts as a key catalyst.
Increasing Spend Amid Competition Presents a Mixed Near-Term Picture
Stiff competition from Amazon (NASDAQ:AMZN) , eBay (NASDAQ:EBAY), Square (NYSE:SQ) , Facebook’s (NASDAQ:FB) Instagram Checkout, among others, is a headwind for Shopify.
In a bid to maintain its competitive position in the e-commerce market, Shopify is increasing investments on product development, infrastructure and platform. These are likely to limit margin expansion in the near term.
In fact, at Shopify Unite Conference, the company rolled out Shopify Fulfillment Network in the United States, for the first time, to facilitate commerce. Reportedly, the company is investing $1 billion in the development of the latest distributed fulfillment network.
Notably, Shopify Fulfillment Network is aimed at enhancing business processes for merchants. It utilizes robust machine learning (ML) driven inventory-allocation technologies to empower merchants to avoid additional shipping charges.
By ensuring optimized utilization of space and time, merchants can manage inventory and stock accordingly. Moreover, consumers can avail quicker delivery. This is expected to lure more merchants to the Shopify platform.
Although, the distributed network will facilitate merchant expansion going ahead, it is likely to weigh on the bottom line at least in the near 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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