Shopify’s third quarter beat expectations as merchants using its e-commerce platform continued to see strong sales during the pandemic, despite bricks-and-mortar retail reopening in the summer and a broader COVID-19-induced economic downturn. The Ottawa-based firm reported revenue of US$767.4 million between July and September, up 96 per cent year over year and handily surpassing analysts’ consensus estimate of US$663.5 million, as compiled by Bloomberg. 

The resilience of Shopify store sales—even as some competitors are seeing volumes drop as the online shopping wave of the summer recedes—is good news for the company’s top line, and for its new product-heavy future. Here’s a breakdown of the metrics that matter in Thursday’s earnings:

The big number: Gross merchandise volume (GMV), a measure of the value of goods and services that Shopify merchants sell through the platform including shipping and taxes, rose to US$30.9 billion, up 109 per cent compared to the same quarter in 2019. Analysts had projected US$26.1 billion.

Why it matters: The company’s merchant solutions business, fuelled by fees it charges for products and services that clients add on to their basic subscriptions to Shopify’s software, has been contributing the majority of its revenue since the last quarter of 2016. That’s closely related to GMV—the more stores sell, and the more Shopify features they use to do it, the more money the firm makes. For example, US$14 billion, or 45 per cent of merchants’ collective receipts in the third quarter, ran through Shopify Payments, the platform’s processing service—an all-time high. The company has continued launching the service in new markets, with this month’s Belgium rollout taking the total to 17 countries. Merchants’ uptake of the company’s new add-ons also increased. Just over half of qualifying merchants in the U.S. and Canada in the third quarter were using Shopify Shipping, which links clients to parcel carriers at better rates, while cash advances and loans from the firm’s lending service also increased. 

The caveat (that’s not really a caveat): Shopify’s take rate—the share the company earns of transactions conducted on its platform, measured as merchant solutions revenue divided by GMV—was 1.69 per cent in the third quarter. That’s down marginally from 1.72 per cent in the previous three-month span, but up from 1.52 per cent in the same period in 2019. Average order value on the platform dropped in the second quarter, with fixed transaction fees making up a bigger share of it. Payment processing charges are lower for merchants using the booming large-retailer Shopify Plus package, CFO Amy Shapero explained on Thursday’s earnings call. “We fully expect our take rate will continue to rise over the long term.” Analysts tend to agree, citing the launch of new services like fulfillment and the expansion of existing ones like capital lending into new markets. 

The e-commerce effect: Online-shopping fatigue has started to set in for consumers buying from sellers on other platforms, albeit ones with different business models. EBay’s GMV dropped to US$25 billion in the third quarter, from US$27 billion in the previous three-month period, while Etsy’s similar gross merchandise sales were almost flat at US$2.63 billion. Still, the two U.S. tech firms grew revenues 25 and 129 per cent, respectively, and analysts say they’ve managed to add new merchants thanks to the pandemic. RBC Dominion Securities analyst Paul Treiber predicted Shopify’s GMV deceleration “will be one of the most modest across e-commerce this [earnings season].” The firm’s growth is not just about COVID-19 gains—it’s adding new sales channels, and has lots of room to expand given its low adoption rate, he wrote in a note for investors. Long term, he expects Shopify to lag only Amazon for volumes, scale it can use to “negotiate favorable terms with partners and pass along this value to its merchants.”

A note of caution: As the OECD noted this month, retailers are continuing to switch to online sales, driven by real-world pandemic restrictions and shoppers’ continued aversion to leaving the house. But Shopify warns that pandemic-induced demand—both for its clients’ products and for its own services—may not increase forever. “If economic growth slows further or if a recession develops, consumers may not have the financial means to make purchases from our merchants and may delay or reduce discretionary purchases,” the firm’s third-quarter securities filing states. In mid-October, the International Monetary Fund estimated global GDP would contract 4.4 per cent this year, with the U.S.—Shopify’s largest market by far—dropping 4.3 per cent. The lifting of lockdowns has also sent some shoppers back to brick-and-mortar locations; while e-commerce sales in the U.S. were up 42 per cent year over year in August, that’s down from a 55 per cent gain the previous month, according to the Adobe Digital Economy Index. 

Also noteworthy: Shopify earned adjusted net income of US$140.8 million, or US$1.13 per diluted share, more than double analysts’ US$0.52 projection. Raymond James analyst Brian Peterson pointed to the 47 per cent rise in monthly recurring revenue to US$74.4 million, noting that “the conversion of merchants on promotional pricing plans suggests that these emerging brands have staying power.”

How the market reacted: While the company’s stock rose as much as five per cent in pre-market trading on Thursday, it was down 0.33 per cent in late morning trading. Shopify’s share price has soared in 2020; it closed Wednesday up 154 per cent for the year to date. That’s led some analysts who are very positive about its growth prospects to suggest the increased revenue is priced into the company’s valuation.

What’s next: The company once again declined to restore its quarterly and annual financial forecasts, first suspended in early April. But Shapero said it’s anticipating further growth in areas like logistics, particularly with Black Friday, Cyber Monday and the holiday shopping season upcoming. “The ideal way for us to do the Shopify Fulfillment Network is employ teleportation,” CEO Tobi Lütke joked on the earnings call. In the absence of the necessary physics, the company’s warehouse partners are staffing up.