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Cloud Stocks: Shopify Helps Merchants Pivot to Online Stores

Posted on Thursday, May 7th 2020

It is not only big tech giants who are seeing their stocks climb despite the global pandemic. Ontario-based Shopify (NYSE:SHOP) continued its strong run during the quarter. Its stock is currently trading at 52-week high levels and it edged past the Royal Bank of Canada’s valuation to become the largest publicly traded company in Canada.

Shopify’s Financials

Shopify’s first quarter revenues grew 47% to $470 million, significantly ahead of the market’s forecast of $443.1 million. Earnings grew 210% over the year to $0.09 per share, shattering the market’s forecast of a loss of $0.18 per share. Non GAAP operating loss was $7.3 million, compared with the estimated loss of $31.3 million.

By segment, subscription revenues grew 34% to $187.6 million, ahead of the estimates of $183.8 million. Merchant solutions revenue rose 57% to $282 million compared with the Street’s forecast of $260.5 million.

Among other metrics, gross merchandise volume (GMV) rose 46% to $17.4 billion, ahead of the estimates of $16.83 billion. New stores created on its online platform grew 62% between March 13 and April 24 as brick-and-mortar businesses migrated online to deal with the lockdown. Shopify launched several initiatives to attract these customers such as a free 90-day trial period for all new standard plan sign-ups. It is unclear right now as to how many of these stores will use Shopify as their longer term solution, but given that the lockdown conditions aren’t going away soon, they may be there to stay.

The company saw the impact of the virus in mid-March but believes that the sales had gone back to normal levels by April. The other side effects of the virus included doubling of GMV of food, beverages, and tobacco categories during the March 13 to April 24 period and the sharp increase in online sales compared with the in-store point-of-sale purchases.

Like most other companies, Shopify too shied away from giving a forecast for the quarter. Analysts expect Shopify to end the current quarter with revenues of $455.95 million with a loss of $0.07 per share and revenues of $2.04 billion for the year with an EPS of $0.02.

Shopify’s Growth Focus

Shopify is using the current crisis as a growth opportunity to attract more merchants to its platform. To make things easier for them, it recently launched a continuously updated resource center for merchants with tutorials and links to apply for government funding. It rolled out in-store and curbside pickup for users of its point-of-sale products and helped merchants with setting up of local delivery options. It made gift cards available on all of its plans and recorded sales of more than $1 million in gift cards since the change. The gift cards are helping merchants get access to cash quickly during this lockdown.

Shopify also made $200 million additional dollars available through Shopify Capital as working capital loans to the merchants. Merchants can now avail of this loan in the UK and Canada as well. It rolled out Shopify E-mail to all of its merchants to help them reach out to their customers and will make this feature available to these merchants at no extra cost till October 1.

Shopify remains committed to its plan of investing over a billion dollars in building a fulfillment network that will compete with Amazon. According to an eMarketer report, Shopify accounted for 6% of all US e-commerce sales last year. Compare that to Amazon’s 37% market share and one realizes the scale that Shopify has to cover to make an impact on Amazon. Shopify believes it will be able to cover this gap by making it easier for merchants to reach mobile shoppers without dedicated apps. It offers personalized recommendations based on the shoppers’ past purchases and does not use targeted ads. It lets shoppers locate nearby merchants to support local businesses.

Besides marketing strategies, Shopify is also leveraging its PaaS focus to attract merchants. As I mentioned earlier, Shopify’s platform allows third parties to build apps that offer niche services to its merchants. Shopify claims that more than 85% of its entrepreneurs rely on apps to run their business. It has recorded over 11.5 million app installs and as of January of last year, it had helped generate $280 million in cumulative payouts to developers of these apps.

Its stock is trading at $733.53 with a market capitalization of $86.11 billion. It had touched a 52-week high of $739.24 this week. It hit a 52-week low of $242.33 a year ago.

This segment is a part in the series : Cloud Stocks


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