Shopify Inc. (NYSE:SHOP) shares were strong after recently reporting robust earnings. We’ve done some analysis and believe investors are missing some details hidden behind the earnings numbers.

Check out our latest analysis for Shopify

The impact of unusual items on profit

For anyone looking to understand Shopify’s profit beyond the statutory numbers, it’s important to know that statutory profit over the last twelve months was driven by $436 million worth of unusual items. We can’t deny that higher profits generally make us optimistic, but we would prefer that profit to be sustainable. When we analyzed the numbers of thousands of publicly traded companies, we found that an increase from unusual items in a given year is often not repeated next year. And that’s exactly what the accounting terminology implies. Shopify had a fairly large contribution from unusual items relative to its profit through June 2024. Therefore, we can expect the unusual items to make its statutory profit significantly higher than it would otherwise be.

You may be wondering what analysts are predicting in terms of future profitability. Fortunately, you can click here to see an interactive chart depicting future profitability based on their estimates.

Our assessment of Shopify’s earnings development

As mentioned, Shopify’s big run on unusual items won’t last indefinitely, so its statutory profits are probably not a good indicator of its underlying profitability. For this reason, we believe Shopify’s statutory profits may not be a good indicator of its underlying earnings power, giving investors an overly positive impression of the company. The good news is that it has made a profit over the last twelve months, despite its previous loss. Ultimately, it’s important to consider more than just the factors above if you want to properly understand the company. If you want to learn more about Shopify as a company, it’s important to be aware of all the risks it faces. For example: Shopify has 2 warning signs In our opinion, you should be aware of this.

Today we’ve focused on a single data point to better understand the nature of Shopify’s earnings. But there are many other ways to form an opinion about a company. For example, many people view a high return on equity as an indication of favorable business conditions, while others like to “follow the money” and look for stocks that insiders are buying. Although this may require a little research, you may find that free Collection of companies with high return on equity or this list of stocks with significant insider holdings may prove useful.

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This Simply Wall St article is of a general nature. We comment solely on the basis of historical data and analyst forecasts, using an unbiased methodology. Our articles do not constitute financial advice. It is not a recommendation to buy or sell any stock and does not take into account your objectives or financial situation. Our goal is to provide you with long-term analysis based on fundamental data. Note that our analysis may not take into account the latest price-sensitive company announcements or qualitative materials. Simply Wall St does not hold any of the stocks mentioned.