The COVID-19 pandemic is driving more brick-and-mortar retailers and shoppers online, and a growing number are using Shopify’s technology to sell and buy staples like food. On Wednesday, the Ottawa-based firm reported US$470 million in revenue in the first quarter of 2020, up 47 per cent from the same period last year. The e-commerce giant’s stock rose more than six per cent in afternoon trading on the expectation-beating figures, surpassing RBC as Canada’s largest publicly-traded firm by market cap; analysts’ consensus was US$443 million, per Bloomberg.

The COVID-19 pandemic has driven new merchants to Shopify’s platform, including from sectors where the company hasn’t traditionally been strong. Here’s what you need to know:

The big number: Gross merchandise volume (GMV), which measures the value of the stuff that Shopify merchants sell through the platform including shipping costs and tax, increased to US$17.4 billion. That’s a 46 per cent increase from US$11.9 billion between January and March 2019.

Why it matters: Shopify makes money by charging clients subscriptions to use its software, as well as by selling them add-on services and products. Most of the revenue from that second business, which it calls “merchant solutions,” comes from processing fees from its payment feature; users also pay for shipping, point-of-sale hardware and cash advances. Merchant solutions made up 60 per cent of first-quarter revenue, and it’s grown far faster than subscription revenue for as long as the company has reported financial figures. It’s also tied directly to GMV—the more its merchants sell, the more money Shopify makes.

The pandemic effect: On the company’s Wednesday earnings call, CFO Amy Shapero credited merchants’ sales growth in part to “elevated buying in March, driven by [COVID-19], of food and other essentials and items, such as home-office and gym equipment.” The company reported the GMV of food, beverage and tobacco doubled across the combined last three weeks of March and first three weeks of April, compared to the period before. Shopify traditionally hasn’t reported its merchants by category, but a June 2019 report identified shirts and tops, shoes and phone cases as global top sellers. Shapero reported some “initial softening” in the apparel and accessories category in mid-March, although she said it’s since recovered.

The trend line: Consumer packaged goods giants and small vendors whose products you’d normally find at the supermarket are signing up for Shopify, COO Harley Finkelstein said on the earnings call. “Verticals we’ve never seen before, like food stores, are showing up” on Shopify Plus, the company’s offering for large brands, he said, citing Heinz and Lindt. Finkelstein also played a customer service call from a farmer, in tears, who started using the platform to sell vegetables and flowers in her area; the company said local orders in English-speaking countries have more than doubled across categories. Shopify is also securing more grocery clients—this month, Loblaw launched its new meal-kit delivery service on Plus, while regionally popular chain Farm Boy also signed up.

The analysts’ take: Suthan Sukumar, principal for technology research at Eight Capital, is encouraged by the growth of categories like food and beverage in Shopify’s merchant mix, predicting that the shift toward online shopping won’t reverse once the pandemic passes. “Consumers have made it very clear now their appetite to purchase fresh produce and groceries through online channels,” he said. “It’s where the market is going… and Shopify has always been on the frontier of that.” Gus Papageorgiou, head of research at PI Financial, said the trend isn’t restricted to food. Firms “that were dependent on physical retail just had that completely eliminated,” he said. “Companies are realizing that they can’t afford to take [the] risk again to have one of their channels shut down.” Shopify’s speedy onboarding and setup—Finkelstein said on the call that Heinz took seven days, and Lindt five—make it an effective way to do that, Papageorgiou said.

A note of caution: “If we’re truly headed towards Great Depression-like, 20% unemployment by this summer, then demand for the nice-to-haves that are a large part of the inventory of [Shopify] merchants is almost surely to fall,” wrote Canaccord Genuity analysts David Hynes and Robert Young in a note last week, calling it a “meaningful headwind.” The firm’s first-quarter filings warn it could “experience a decrease in [GMV] as a result of lower consumer spending” due to COVID-19, although it said that will be “at least partially offset” as more retailers sell online.   

The best of the rest: Brick-and-mortar Shopify merchants saw a 71 per cent drop in GMV through POS terminals between March 13 and April 24 compared to the previous six-week span, but made up 94 per cent of that with online sales.

What’s next: The company suspended its 2020 financial forecast in the beginning of April, citing pandemic-related uncertainty. On Wednesday, it declined to provide new guidance, but said it’s monitoring unemployment and consumer spending habits, among other factors. Shapero also said Shopify will delay unspecified international-expansion investments it had planned for this year, spending instead on product development and adoption in its core markets—the U.S., Canada, U.K. and Australia. The company is also pausing its ad-driven brand-awareness campaign and reducing other marketing activities, insteading using “in-house creative solutions.” It launched a content division in January 2019. The marketing cutback follows Jeff Weiser’s departure as CMO; he was not directly replaced.