Why Investors Not Worried About Shopify Inc (SHOP)’s Net Losses?

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Shopify Inc (NYSE:SHOP), a $3.51-billion market company providing a cloud-based e-commerce platform to small and medium-sized businesses, has been performing well this year. The company’s shares are up more than 60% year-to-date. The e-commerce company has been reporting impressive revenue growth and heavily spending money to further grow its revenue, according to a report in The Motley Fool.

For the second quarter ending June 30, Shopify reported a second-quarter revenue of $86.6 million, representing a 93% year-over-year. This was the company’s fourth consecutive quarter of revenue growth greater than 90%. Despite its incredible sales growth, the company’s loss in the second quarter widened to $8.7 million, versus around $3.4 million in the same period last year.

Why Shopify Reporting Net Losses

According to the Fool report, the e-commerce company is spending heavily in revenue growth.

The company is spending money on new services and features to create value that boots revenues in the long-terms.

Shopify’s management has to scarify profits in the short term to pursue several growth initiatives. In April, the company acquired Kit CRM, a virtual marketing assistant that uses messaging to help businesses market their online stores. The company is also betting on mobile solutions, which include Apple Pay and Android Pay.

With more features and tools, the company could convert more merchants into higher players of its e-commerce platform.

“If all goes according to plan, the e-commerce company should be able to continue delivering close to triple-digit revenue growth in the next several quarters, and post a profit as its business scales,” according to The Motley Fool.

So, it seems that investors are familiar with the company’s management long-terms plans and the company’s is up nearly 40% in the last three months.

Partnerships with Amazon and eBay

The company’s partnerships with Amazon and eBay have played an important role in its growth. The company made it easier to integrate stores on its platform with Amazon, eBay, and other e-commerce sites. This makes Shopify attractive and preferred solution for merchants looking to quickly build a multi-commerce business.

In 2015, Amazon ditched its own selling platform, Webstore, and joined hands with Shopify to provide merchant services to its third-party vendors.

At the same, Shopify benefited from eBay’s decision to shut ProStores at the end of 2014, diverting small businesses to Shopify’s e-commerce platform.

Shopify Stock

Shares of Shopify are up 65.2% for the year. The stock has gained 50.86% during the last six months and 19.85% during the past 12 months.

Institutional investor Insight Holdings Group boosted its stake in Shopify by more than 900% in the second quarter 2.44 million shares valued at $75.2 million.

 

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