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Shopify Soars to New Highs

Posted on Monday, Aug 19th 2019

Shopify (NYSE:SHOP), a leading cloud-based commerce platform that helps SMBs run their business through both physical and digital storefronts, recently announced results for a strong second quarter that surpassed estimates. Over the past year, its stock has soared over 150%.

Shopify’s Financials

Shopify’s second quarter revenues grew 48% over the year to $362 million, beating the market’s forecast of $350 million. Adjusted EPS was $0.14, ahead of the market estimate of $0.02.

By segment, subscription solutions revenues grew 38% to $153 million, driven by 34% growth in Monthly Recurring Revenue (MRR) to $47.1 million. Merchant Solutions revenue grew 56% to $208.9 million, driven by growth in 51% growth in GMV to $13.8 billion.

Among other metrics, Shopify Capital cash loans to merchants grew 36% to $68.5 million. Gross Payments Volume on its platform grew 61% to $5.8 billion, accounting for 42% of GMV processed in the quarter.

For the third quarter, Shopify expects revenues of $377-$382 million, beating the market’s forecast of $374 million. Shopify raised its full year forecast. It now expects to end the year with revenues of $1.51-$1.53 billion, compared to its earlier guidance of $1.48-$1.50 billion and the Street’s forecast of $1.47 billion.

Shopify’s New Offerings

Shopify launched Shopify Payments in the Netherlands, enabling iDEAL as a local online banking payment method. In Denmark, Shopify Payments will support Visa Dankort’s debit payments. Shopify Payments is now available to 13 countries. Shopify Admin is available in 18 languages with the launch of native language capabilities in 11 more languages including Traditional Chinese, Simplified Chinese, Danish, Dutch, Finnish, Hindi, Malay, Norwegian, Swedish, Korean and Thai.

Shopify is also launching a next generation Shopify POS software, which is faster, more intuitive, and more scalable. Shopify launched a new integration for Shopify Ping with Apple Business Chat as a new way for merchants to talk to, support, and create a personal connection with customers, increasing trust and conversion to sales.

Shopify’s Focus Areas

Last quarter, Shopify announced that it is planning to invest $1 billion to set up a network of fulfillment centers in the US. Shopify Fulfillment Network is now available for early access. The fulfillment service will utilize machine learning to ensure timely deliveries and lower shipping costs, putting their brand and customer experience front and center. I think it is just following a very capital intensive strategy to meet an unrealistic objective of scaling to the level of Amazon. 

Another focus area for Shopify has been its Shopify Plus platform that is meant for larger sellers. During the second quarter, Shopify Plus grew 53% to $12.4 million, accounting for 26% of the total MRR. The company is revamping it to meet the needs of businesses with multiple locations in multiple countries selling merchandise in multiple currencies. Client list for Shopify Plus includes names like Sony, Dolby, and Heineken as well as celebrity-driven brands like Katy Perry Collection and Kylie’s Skin.

Earlier in May this year, Shopify acquired New York-based Handshake, a B2B e-commerce platform founded in 2011. Its team is now functioning as part of Shopify Plus. The terms of the deal were not disclosed but its value is estimated to be less than $100 million. Handshake had raised about $23.5 million and was valued at under $54 million in its last funding round in 2016. Its revenue is estimated to be $5.6 million.

Its stock is trading at $358.74 with a market capitalization of $40.38 billion. It touched a 52-week high of $372.36 earlier this month. The stock was trading at a 52-week low of $117.64 in December last year.

The stock has delivered robust growth since it listed in 2015 at $17 at a valuation of $1.3 billion. Prior to the listing, it was venture funded and had raised $122 million from investors including Felicis Ventures, Georgian Partners, Bessemer Venture Partners, FirstMark Capital, Insight Venture Partners, and OMERS Ventures. A $100 million round held in December 2013 had valued Shopify at $1 billion.

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