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Why Axis

Breaking down Shopify’s ‘blowout’ quarter

Amid the COVID-19 pandemic, swarms of brick-and-mortar retailers are shifting their business online for the first time—a trend that’s helped Shopify nearly double its revenues in the second quarter. 

On Wednesday, the Ottawa-based firm reported US$714.3 million in revenue for the quarter ended June 30, up 97 per cent from the same period last year and almost 40 per cent above analysts’ predictions. 

Why Axis

Breaking down Shopify’s ‘blowout’ quarter

By Catherine McIntyre
Shopify CEO Tobi Lütke speaks during a technology conference in New York in October 2019.
Shopify CEO Tobi Lütke speaks during a technology conference in New York in October 2019. Photo: Cate Dingley/Bloomberg via Getty Images
Jul 29, 2020
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Amid the COVID-19 pandemic, swarms of brick-and-mortar retailers are shifting their business online for the first time—a trend that’s helped Shopify nearly double its revenues in the second quarter. 

On Wednesday, the Ottawa-based firm reported US$714.3 million in revenue for the quarter ended June 30, up 97 per cent from the same period last year and almost 40 per cent above analysts’ predictions. 

Talking Point

Shopify nearly doubled its revenue in Q2 2020 compared to the same period last year, reaching profitability for the first time since going public. Driving the record-breaking results was an onslaught of new merchants and increased business among existing ones as the COVID-19 pandemic rapidly transformed the way people shop.

The company’s record-high revenue coincides with its rollout of new products and services to help merchants beef up their sales pipelines during the pandemic. “I cannot recall a time in our history when we’ve shipped so many features in such a short period of time,” said COO Harley Finkelstein on Wednesday’s earnings call. 

Some of those services—including a new partnership with Walmart that lets Shopify merchants sell through Walmart.com, and the ongoing expansion of its fulfillment networks—aren’t captured in this quarter’s results. They’re a long-term play to create an omni-channel selling experience for merchants while onboarding new international shops, and could help Shopify sustain its growth even after the pandemic boost, said Suthan Sukumar, principal analyst for technology research at Eight Capital, who described the quarter as a “blowout.” 

Here are the big numbers behind Shopify’s record quarter. 

US$30.1 billion: The total value of goods sold through Shopify’s platforms, known as gross merchandise volume (GMV). The metric increased by 119 per cent compared to the same period last year, and eclipsed the next-best quarter, Q4 2019, by nearly US$10 billion. Although GMV increased across the board, non-traditional and international merchants saw outsized growth compared to the company’s mainstays in the apparel, accessory and cosmetics categories. Food, beverage and tobacco merchants, for example, doubled their GMV over last quarter’s results, as stay-at-home orders increased demand for grocery and food delivery, as did alcohol and cigarette use. 

US$3 billion: The margin by which Shopify merchant transactions and fees beat those posted Tuesday by industry pioneer eBay for the same period.  

71 per cent: The growth in new stores added to the platform compared to last quarter. The uptick was driven by the rapid shift in how people shop, on which Shopify capitalized by extending the free-trial period on its standard plans from 14 days to 90 days. It counteracts the 29 per cent drop in Shopify’s point-of-sale business for brick-and-mortar stores for the period. 

US$36 million: The company’s reported profit for the quarter, up from a US$28.7-million loss for the second quarter last year. Before the pandemic, analysts hadn’t expected the firm to be profitable until 2022. Despite beating that deadline, sustaining its profits through the next year is unlikely, Sukumar told The Logic. “The significant acceleration this quarter is not going to be repeatable, but you’re still going to see ongoing strength on a year-over-year basis.”

US$339 million: The costs associated with GMV—that is, how much the company spent  acquiring new customers and selling them add-on services and products. Shopify breaks this down by subscription solutions and merchant solutions, which cost it US$44.4 million and US$294.9 million, respectively, for the quarter. Combined, those costs are up about 115 per cent from the same period last year and 59 per cent higher than the last quarter. The spending reflects Shopify’s increased efforts to attract new business, rather than simply relying on shifts in shopping trends. 

US$153 million: The amount of funding deployed through Shopify Capital, the firm’s small-business loan initiative, in Canada, the U.S. and U.K. The spending represents a 65 per cent increase over the second quarter last year, at which time Shopify Capital was only available to U.S. merchants. “Access to capital is even tougher in times like these, which makes it even more important to continue lowering this barrier by making it quick and easy, so merchants can focus on growing their business,” said CFO Amy Shapero on the earnings call.

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US$31.6 million: The impairment charge associated with shift to a permanent remote-working model, including exiting some secondary offices in major cities. Despite the charge, the new model is expected to save the company money, much of which it will ultimately spend to ensure employees are well equipped to work remotely. 

8.26 per cent: The surge in share price value on the Toronto Stock Exchange, as of early afternoon. Investors added about $108 per share to the stock price, which was trading at $1,417.04 as of publication, an all-time high on the TSX. The stock has more than doubled over the past six months, sending its market capitalization to about $167 billion.

#COVID-19 #Shopify

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Shopify CEO Tobi Lütke speaks during a technology conference in New York in October 2019.

Photo: Cate Dingley/Bloomberg via Getty Images

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