Shopify Inc. (SHOP) on Q1 2021 Results - Earnings Call Transcript
Operator: Thank you for standing by. This is the conference operator. Welcome to the Shopify First Quarter 2021 Financial Results Conference Call. As a reminder, all participants are in listen-only mode and the conference is being recorded. After the presentation, there will be an opportunity to ask questions. . I would now like to turn the conference over to Katie Keita, Director of Investor Relations. Please go ahead. Katie Keita: Thank you, operator, and good morning, everyone. We are glad you can join us for Shopify’s first quarter 2021 conference call. We are joined this morning by Tobi Lütke, Shopify’s CEO; Harley Finkelstein, Shopify’s President; and Amy Shapero, our CFO. After their prepared remarks, we will open it up for your questions. We will make forward-looking statements on our call today that are based on assumptions and therefore subject to risks and uncertainties that can cause actual results to differ materially from those projected. We undertake no obligation to update these statements, except as required by law. You can read about these assumptions, risks and uncertainties in our press release this morning, as well as in our filings with U.S. and Canadian regulators. Note that the adjusted financial measures we speak to today are non-GAAP measures, which are not a substitute for GAAP financial measures. Reconciliations between the two can be found in our earnings press release. And finally, we report in U.S. dollars. So, all amounts discussed today are in U.S. dollars, unless otherwise indicated. With that, I turn the call over to Harley. Harley Finkelstein: Thanks, Katie, and good morning. It's been more than a year since the global pandemic began, which triggered ecommerce to grow at a rate that has transformed the traditional retail model. Shopify’s continued focus on bringing the best tools to our merchants to help them thrive in this environment drove our strong performance in the first quarter. Our GMV growth accelerated year-over-year as merchants across cohorts and geographies thrive in our platform, backed by robust consumer spending and more entrepreneurs launched businesses on Shopify, trusting us with their livelihoods as they turn their ideas into reality. We continue to reduce friction from our merchants so they can find new buyers, build strong customer relationships, and more easily manage the increasing complexity of their back office operations as they scale. Discovering new buyers is a top pain point for businesses. Multi-channel selling, which is one of our core value propositions, is becoming more critical as the cost of customer acquisition climbs and the lines blur between online and offline commerce. Our sales and marketing channels help merchants to show up where future buyers are spending time. We are ushering in a new era on social commerce and helping more brands and consumers engage in the digital main streets. The number of shops actively selling on Facebook Shops has more than quadrupled since Q1 a year ago, as well as the GMV through Facebook. While still small, the launch of Facebook Shops in May of last year is clearly starting to make a difference here. Amy Shapero: Of the millions of stories we could have shared, this one especially shows just how irrepressible and global the spirit of entrepreneurship is and how our merchants are persevering. And when our merchants do well, Shopify can bring more and better ways to help everyone compete and succeed. We're on the right track. Shopify experienced rapid revenue growth in our first quarter as the tailwinds from the acceleration of digital commerce continued to drive an acceleration of GMV and more merchants launched businesses on the platform and adopted more of our services. Overall, revenue growth accelerated from last quarter, up 110% year-over-year to $988.6 million in our first quarter. To put this in perspective, our first quarter revenue exceeded our fourth quarter revenue, a remarkable achievement given we typically see a seasonal decline quarter-over-quarter coming off the holiday selling season. Subscription solutions revenue growth accelerated to 71% year-on-year in Q1 to $320.7 million, largely due to strong growth in monthly recurring revenue. MRR growth accelerated to 62% year-over-year to $89.9 million in Q1 as demand for Shopify remained elevated. Q1 MRR also benefited from our first full quarter of incremental revenue from our retail POS Pro subscription, although its contribution remains relatively small. Strong app and Shopify Plus platform fee revenues contributed to the 9 percentage point difference between the growth of subscription revenue and MRR. Shopify Plus contributed $23.1 million or 26% of MRR compared with 28% in Q1 of 2020. While Shopify Plus MRR grew significantly, non-Plus MRR grew faster benefitting from a significantly higher number of merchants on standard plans joining the platform in 2020 and the first quarter as well as from our first full quarter of Shopify POS Pro subscription revenue. Merchant solutions revenue growth accelerated to 137% over the same period in 2020 to $668 million. This outstanding growth was driven primarily by merchant strong sales, with GMV growth also accelerating to 114% to $37.3 billion in the first quarter alone. Strong Q1 GMV versus last year was the result of a greater share of retail spend going to online purchases, higher GMV per merchant and an injection from the latest round of stimulus in the United States introduced in March. While GMV growth across all regions accelerated, the strong growth in North America was outpaced by growth outside North America, which is gratifying given our focus there. The strong growth in merchant sales combined with increased GMV penetration of Shopify Payments and merchant adoption of Shopify Capital and Shipping compared with the same period last year drove revenue from these products higher. $17.3 billion of GMV was processed on Shopify Payments in Q1, an increase of 135% versus the comparable quarter last year. Payments penetration of GMV was 46% versus 42% in Q1 2020. The majority of new merchants coming onto Shopify opted to use Shopify Payments, and Shopify Plus in international merchants expanded their share of GPV year-over-year. Adjusted gross profit dollar growth accelerated to 114% over last year's first quarter to $565.1 million, and outpaced revenue growth largely due to stronger Shopify Payments margins. The combined strength in revenue improved margin profile of Shopify Payments and lower overall OpEx spend as a percent of revenue contributed to strong adjusted operating earnings in Q1 compared to the same period last year. Adjusted operating income was $210.8 million in the first quarter compared to an adjusted operating loss of $7.3 million in the first quarter of 2020, as our acceleration in revenue outpaced growth in spend. Adjusted net income for the quarter was $254.1 million, or $2.01 per diluted share, compared with adjusted net income of $22.3 million, or $0.19 per diluted share in last year's first quarter. Adjusted net income in Q1 2021 excludes a $1.3 billion unrealized gain from our equity investment in a firm, which we wrote up to its fair value upon and subsequent to the company's IPO. Finally, our cash, cash equivalents and marketable securities balance was $7.87 billion on March 31 compared with $6.39 billion at year end. The increase reflects $1.5 billion of net proceeds from our share offering in February, strengthening our balance sheet and providing flexibility to fund our growth strategies. Last quarter, we outlined three key areas of incremental investment for 2021. I'll walk through the progress we made in our first quarter and provide an update on our outlook for the rest of the year. First, the Shopify Fulfillment Network where, as Harley laid out, we made solid progress in our first quarter. We continued to build software to make fulfillment easier for our merchants, introducing enhanced inventory management capabilities and better insights to manage orders. As we build the product market fit of Shopify Fulfillment Network, we continue to focus on optimizing our software and network for accuracy, efficiency and merchant delight. 6 River Systems plays an important part in this process, optimizing traffic flow within our partner warehouses to balance throughput, improve safety and increase productivity. They're easy to deploy, fulfillment technology is also enabling their customers to act with speed and agility, helping them scale as demand for their products has increased during the pandemic. Second is Shop. The ecosystem of Shop’s features that Harley described is attracting an audience of engaged followers for our merchants in the app. Although early, we're seeing promising levels of engagement with buyer cohorts using the app for several months. We will continue to build more features into Shop that offer buyers a delightful shopping experience and strengthen their relationship with merchants. And third is international expansion. More international merchants are joining and succeeding on Shopify as we step up our marketing and sales efforts to introduce more entrepreneurs to Shopify, and continue to localize our platform and focused countries. Rest of world GMV growth outpaced that of North America, and revenue from these international regions increased as a part of the overall mix in our first quarter. We are also expanding merchant solutions to work well for how commerce happens everywhere in the world. We have seen how merchants benefit when we make things like payments, shipping, capital and retail easily available to them. So we are excited to make the full power of our platform available to Shopify merchants in more geographies. We made Shopify Shipping an option to sell shippers in Australia last year, and we'll continue to explore partners and geographies to give more merchants this option natively. And the reopening of non-essential retail businesses earlier this month in the UK coincided nicely with the marketing launch of our all new POS there and in Ireland. We are eager to bring independent shops that have survived an incredibly difficult year, omni-channel capabilities, as well as other cutting edge commerce features that make them even more resilient. These longer-term investments are important to our merchants’ success. To further future proof our offerings and capitalize on our position at the intersection of entrepreneurship and ecommerce, we're also stepping up our strategic partnerships. This includes investments in companies and technologies in our ecosystem that align with our mission and whose success at scale could positively impact our merchants. We have several such investments now, Affirm being one example. Turning to our outlook. Our full year 2021 outlook is guided by assumptions that remain unchanged from February that as countries continue to roll out vaccines in 2021 and populations are able to move about more freely, the overall economic environment will likely improve, some consumer spending will likely rotate back to offline retail and services and the ongoing shift to ecommerce, which accelerated in 2020, will likely resume a more normalized pace of growth. In March 2021, the U.S. government passed a coronavirus relief package and began processing stimulus payments in early March. The benefit to Shopify’s GMV from this latest round of stimulus ended in early April. In view of these factors, we continue to expect to grow revenue rapidly in 2021, but at a lower rate than in 2020. For the full year 2021, we continue to expect the following. Subscription solutions revenue growth to be driven by more merchants around the world joining the platform in a number lower than the record in 2020, but higher than any year prior to 2020; the growth rates of subscription solutions and merchant solutions revenues to be more similar to each other than in the recent past as we do not expect the surge in GMV that drove merchant solutions in 2020 to repeat. Merchant solutions revenue growth to be driven by continued GMV growth from existing merchants, new merchants joining the platform and expanded adoption of Shopify’s growing menu of merchant solutions, including established offerings such as Shopify Payments, Shopify Shipping and Shopify Capital, both geographically and as merchants grow into them, while newer solutions such as Shopify Fulfillment Network and 6 River Systems contribute nascent but incremental revenue in their early stages. While we expect that the first quarter will likely still contribute the smallest share of full year revenue and the fourth quarter the largest, the revenue spread may be more evenly distributed across the four quarters than it has been historically, if the rollout of a vaccine shifts more consumer spending to services and offline shopping towards the back half of the year. 2020 catapulted commerce into a period of incredibly rapid change, presenting Shopify with unprecedented opportunities in 2021 to accelerate innovation. We continue to expect rapid growth in gross profit dollars in 2021, and plan to reinvest back into our business as aggressively as we can with a year-over-year growth in operating expenses accelerating each quarter throughout the rest of the year. We are seeing greater volume and velocity of new engineering hires over the last several weeks after putting the rails in place in Q1 to make this possible. Digital by design, our approach to a fully remote workforce that we're eager to keep building and improving on has also been helpful to hiring. As we continue to gain steam, we expect the bulk of our spending to happen in the second half of 2021. As such, we expect full year 2021 adjusted operating income to be below the level we achieved in 2020. For 2021, we now anticipate stock-based compensation expenses and related payroll taxes of $425 million and amortization of acquired intangibles of $21 million. More than a year out since the onset of the pandemic, there are so many moving pieces in the commerce landscape and will be for the foreseeable future. What is apparent is that entrepreneurs are adapting and thriving. With our mission to make commerce better for everyone, our merchant-first business model and a strong balance sheet, Shopify is well positioned to execute on our portfolio of growth initiatives, and give our merchants the tools they need to compete in the future of commerce. With that, I'll turn the call back to Katie. Katie Keita: Thanks, Amy. I'm sure I don't have to remind you all to help us make time for everyone to ask a question on the call today, by limiting yourselves to a single very good question. Arielle, can we start with the first question, please? Operator: Certainly. Our first question comes from Thomas Forte of D.A. Davidson. Please go ahead. Thomas Forte: Great. Thanks for taking my questions. So, Tobi, you wrote a very thoughtful blog post about building a company to last 1,000 years and executive turnover. How should investors think about the duration of your own tenure as CEO of Shopify? Tobi Lütke: Thanks for the question. Yes, I'm committed. I'm in for a long term here. I've never in my life come up with a better idea than the one of Shopify. So I'm all in. Of course, as I said in email, I did write this rather thoughtfully because I just wanted to -- there's a lot of -- when people leave companies, it's also kind of a little hard for everyone to figure out how to react to that. I do think that it's rather something that should be celebrated, because clearly incredible things have been done together. And I think in the Shopify story, everyone sees that this team has done some really amazing things together. I'm deeply grateful to everyone who joined me on this for this part of the journey. And leaving at the right time is something world class executives do. And so I think this is important for me. It would be way too early in the one, two, three way that I laid out in this post. Katie Keita: Thanks, Tom. Operator: Our next question comes from Siti Panigrahi of Mizuho. Please go ahead. Siti Panigrahi: Thanks for taking my question. Tobi, you talk about this sharp increase of ecommerce adoption. Like you said before, it pulled forward adoption by 10 years. But how has the competitive landscape changed? Mainly even from marketplaces, are you seeing consumer more attracted towards marketplaces? Tobi Lütke: The growth is so big in digital commerce that it really is hard to talk at all about sort of the zero sum-ness of the channels. They honestly are all growing and consumer mix is changing as people are getting more comfortable just using the Internet more broadly. There's certain categories and it's hard to know which one’s supposed to wind up be, but people love to go direct because you have this direct -- we talk about the direct to consumer a lot. Maybe I'm not going to take this all the way from the top here, because I think everyone's well familiar with the dynamics behind it. But what we're finding is that I think the macro trend here is like the past -- the limited inventory of the channels and the sort of department store world could carry just led to very poor quality of products and very, very high turnover products, people just had to replace everything a lot. Now, because of being able to purchase directly from makers who’ve been highly incentivized not to win the channel, but rather make the best product, just the quality of process going up. So I think more and more categories of products are bought at higher quality levels for longer time periods and often in a direct – way directly for manufacturer. Again, I don't think that's necessarily competing with the channels, because it's really, really growing the market and the same person might buy from a marketplace a bunch of things at 9 am in the morning and then buy something direct 9.20 that he’s been thinking about for months. I think everyone can do all of it, and Internet commerce has a lot of growth ahead of it. Katie Keita: Thank you, Siti. Operator: Our next question comes from Ken Wong of Guggenheim Securities. Please go ahead. Ken Wong: Hi. Thanks for taking my questions. Harley, earlier you mentioned seeing higher attach of shipping and how potentially fulfillment could kind of follow in that path? Is that 50% attach the right level to think about what fulfillment demand could look like? And as merchants’ adoption increases, how are you thinking about the need to supplement the partner model with your own distribution? Harley Finkelstein: Hi, Ken. Thanks for the question. A couple of things. So on the Shopify Shipping in particular, as I said, yes, adoption has grown significantly since we launched five years ago. Now more than half of eligible merchants in the U.S. and Canada are adopting it. And I think Shopify Shipping has really proven its relevance. Now self shipping is a phase that some merchants will continue to do and others will kind of grow through, which is why things like SSN is really important. In terms of the updated SSN, I alluded to this in the opening remarks, but more merchants joined us in Q1 and volumes fulfilled in Q1 were actually similar to Q4, which, of course, is very strong holiday season. What we really want to do with SSN is we want to continue to build the foundation of the network itself, we want to focus on optimizing the software and the network, we want to keep introducing new features that give merchants better insights. Now you may have a merchant who may use Shopify Shipping for certain products and SSN for other products, you may have certain merchants that decide SSN is exactly where I need to be. But the SSN -- we are targeting customers in this product market phase who are self shippers right now, who are fulfilling anywhere from 10 to 10,000 orders a day, durable goods is really important and also brand experience is really key for their business. And so we really are narrowing down exactly who is the right customer for SSN, because we want to have the best -- we want them to have the best experience possible. But I don't think it's going to be SSN or Shipping. I think that the idea of Shopify becoming the global retail operating system is that merchants get different choices, depending on what they need for their particular business. Katie Keita: Thanks, Ken. Operator: Our next question comes from Colin Sebastian of Baird. Please go ahead. Colin Sebastian: Great, thanks. Good morning, everyone. Maybe another one for Tobi here. With respect to the technology platform and using Rails, I'm sure you're happy with the scalability so far. But do you have any concerns about the next stage of growth and are you satisfied overall with the pace of product development? Thanks. Tobi Lütke: Thank you. Yes, part of the reason why Shopify booked really well is because we made very good assumptions about the future across business and technologies. We were a very small team for first six years before we took our first outside venture investment. And thanks to technologies like Rails and others, we were able with a very small team to move significantly faster than much, much larger teams on world technology stacks. So getting leverage from technology is very core to Shopify. We said we are a few 1,000 engineers, but I think we have the same ideas about getting productivity from using the best pieces of software, using open source as much as we can and maintaining good open source projects that help us increase just the productivity in the company, and also give back to the community that has given us so much. And we have an absolute world class engineering team and everyone knows exactly how to scale Shopify as far as it needs to go. So no really concerns and I'm really, really happy with productivity and progress on product and engineering infrastructure fund. Katie Keita: Thanks, Colin. Operator: Our next question comes from Trevor Young of Barclays. Please go ahead. Trevor Young: Hi. Thanks for taking the question. You flagged some impact from the stimulus payments in March which I think you indicated robust in early April. One, could you help us quantify that impact? And then how should we think about how that impacted the growth differential you mentioned between international and domestic GMV? Thanks. Amy Shapero: Yes. So, the U.S. stimulus did have a noticeable impact to our GMV in the quarter, but GMV was strong even without it. And let me give you a couple of data points. So looking at total GMV, we started to see the acceleration in growth in January and February before U.S. stimulus was even a factor in March. And in addition, for the quarter, our GMV outside of the U.S. accelerated at a faster pace than the U.S. So this isn’t just a U.S. stimulus story. It was strength across the board in GMV. Across every merchant type, standard and plus, there was an acceleration in every geography, so strength across the board. Katie Keita: Thanks, Trevor. Operator: Our next question comes from Paul Treiber of RBC Capital Markets. Please go ahead. Paul Treiber: Thanks very much and good morning. Just a question for Tobi. I’m curious on your thoughts on leadership and culture. In particular, can you speak about the importance of continuing to foster a culture of empowering and enabling employees against Shopify’s increasingly ability to bring in proven management from the outside? Tobi Lütke: Yes. The way I think about it is it’s not an either/or. What you need is the right balance of teachers and students. And so sometimes the same people can be teachers in one context and students in another. And actually making this very explicit is a really, really, really important component of building a good culture. Because, for instance, some people have been with the company for a very long time and therefore have been in a lot of key situations and meetings, for instance, where very key and subtle decisions have been made. This is context that’s extremely valuable not for reasons of explaining the outcome of the meeting but rather bringing and teaching someone who might have just arrived, what was considered to make the decision, right? Because one thing you have in a company that grows extremely quickly like Shopify has is it’s a grand old building that has a lot of things that could be better in it, right? Because we’re in a hurry, we grew very, very fast. And very smart people come in later and join the team and say, everyone, this wall over here, is this something that -- I can’t figure out why that wall is there. And so the ideal thing to do then is potentially not have a wall there. Modify the building to be better for the purposes. Ideally, in this case, someone puts up a hand and says, actually, I remember putting this wall up. We were in a hurry and we just needed to get something done, or someone puts up a hand and says, actually that’s load bearing. And there’s a really good reason for this being there and we don’t need to actually run this experiment of removal and deal with the consequences. So, the way I’m thinking about this if you really want a good ratio, you want there to be people who have high potential and ideally have someone who has seen the movie before and can -- because that in fact leads to a faster personal growth. And my belief is that companies really aren’t anything other than the aptitude, skills of every person in the company combined, potentially multiplied by the alignment of direction and then whatever number is, that’s really what the company is and how good the company is. And as long as you keep the balance, I think you’re building a great culture. And as long as everyone’s honest, in which cases they can be the teachers in this case, they can be the students, then I think you have a really, really good culture. Katie Keita: Thanks, Paul. Operator: Our next question comes from Craig Maurer of Autonomous Research. Please go ahead. Craig Maurer: Good morning and thanks for taking the question. I wanted to come back to the discussion of Shopify Balance and its rollout. Can you talk about the long-term revenue model for financial services offered as part of an ecommerce platform? Is this long term and interchange model a credit or net interest income-driven model? Just a little thoughts on how you view the future of Balance would be really helpful. Thanks. Harley Finkelstein: Hi, Craig. I’ll take that question. So to be clear, Shopify Balance is really built for independent businesses. We want to act as our merchants' financial partner. When a merchant signs up for Balance, they get immediate access to an integrated account to build their funds, they get a card to access cash fast and be able to spend their money, they get monthly cash back rewards that are relevant to their actual business. But they also get these great insights in terms of the business' cash flow. We’re doing this really primarily because we think that right now business banking, particularly for small businesses, is not working. A lot of merchants, a lot of small businesses still use their personal bank accounts because it’s so complicated. And so in terms of the rollout of it, we’ve added more merchants to the early access program in Q1. We are on track for general availability to eligible merchants later this year. But that idea, whether it’s Balance or Shopify Payments or Shopify Capital, it’s just another way that we’re trying to look at all the different barriers to success that a traditional small business might have and reduce those barriers. You heard earlier that we’ve now given more than $2 billion worth of capital to small businesses. That $2 billion mark is important because, obviously, it shows the growth of Shopify Capital. But more importantly, these are small businesses that otherwise may not have access to their capital and they’re using it to grow their business. And it’s an amazing thing to watch when you can actually democratize so much of the business challenges and make it available to over 1.7 million merchants. You will see us do more of these things in the coming years, but in terms of how we monetize each of those particular financial services, those will each be very different. Katie Keita: Thanks, Craig. Operator: Our next question comes from Josh Beck of KeyBanc. Please go ahead. Josh Beck: Thank you for taking the question. I wanted to ask about Shop app. Certainly, the origin seems centered around this idea of online shopping assistant. It seems like it’s expanding. You talked about discovery filters to find local businesses of all sorts, which is great. But I’m just curious, maybe what is the longer-term ambition in terms of how you see this product fitting into the broader Shopify platform? Thank you. Tobi Lütke: Yes. The number one goal is just to end-to-end tool up the process of commerce, and then this is buying from independent stores, pre-Shop. We had to rely on very sort of ad hoc organic prioritization of a process. What I mean is like after you bought something, you then have to -- you’ve got emails with updates. We were internally pre-building shopping by joking about imagine like Uber would work like this, you call a taxi and then they sent you emails every once in a while, just the location of the cab that’s supposed to pick you up, and then someone would heavily remark that that’s exactly how taxi services actually work, and that seems pretty crazy. But this is sort of the way we solve problems, and we will enter in Computing & Shop. We wanted to make it so that you buy something from independent business or direct from vendors and the process of getting it to you is much clearer. And hopefully, the after sale of care is going to be something that we’ll look into as well in terms of reverse logistics and returns, and that’s the primary objective. And with that -- so this is very utilitarian, but actually really important and very delightful as a well-loved product. There are more opportunities. As you see, we have some experiments every once in a while. There’s different -- like pointing you to different things you might be doing or could be doing, could consider like local shopping and supporting particular courts of businesses, and let’s see where that leads. Katie Keita: Thanks, Josh. Operator: Our next question comes from Mark Mahaney of Evercore ISI. Please go ahead. Ben Wheeler: Thank you. This is Ben Wheeler on for Mark. Just a question on Shopify Pay, if I could. So Facebook and Instagram are the first places that Shop Pay is being used outside the Shopify ecosystem. Can you just talk about the impact that has had on sales conversion in those channels? Are you actively working on similar integrations with Shop Pay in more social and digital channels? Thank you. Harley Finkelstein: I’ll take that question. So to be clear, yes, Shop Pay is now available on Facebook, Checkout on Instagram and it’s available to all Shopify merchants and buyers in the U.S. We are starting to see some GMV transacted via Shop Pay on Facebook Checkout, although, obviously, it’s very early days so the levels are fairly low. But really the implementation of Shopify Payments and Shop Pay as a processor across a bunch of different services is really because so many of consumers’ favorite brands and their favorite stores are powered by Shopify. And so the idea of bringing Shop Pay to more services all over the Internet feels like a really great idea, and it makes not only the conversion rate is higher on the merchant side, but from a consumer perspective, you’re able to checkout a lot faster and a lot more seamlessly. So you will see Shop Pay in more services. But really what you also are seeing is that the center of gravity really for retail right now has completely shifted to online. And as we sort of think about Shopify as a retail operating system, you’re going to see us find ways in other services where people are hanging out sort of the virtual town squares like Facebook and Instagram, add more functionality to make shopping in those places a lot better. And I think the advantage that, of course, we bring is not just the technology of Shop Pay, but the fact that we have 1.7 million of the greatest, most interesting and most important brands in direct-to-consumer and beyond. Katie Keita: Thanks, Ben. Operator: Our next question comes from Brent Bracelin of Piper Sandler. Please go ahead. Brent Bracelin: Good morning and thank you. I guess I wanted to follow up on this thread here for Harley. What really stood out to me this quarter was the acceleration in GMV, $20 billion higher year-over-year, GMV growth accelerating. I think you talked about all merchants and geographies even before the stimulus kicker hit in March. So the question for you, Harley, what’s driving this broad-based acceleration in GMV in January and February in particular? Is this just a broader behavioral shift in consumer preferences? Are you starting to see these social commerce tailwinds become material enough to drive an acceleration? Are we just seeing the software innovations reduce friction to buy online? Just trying to understand why now, why would you see an acceleration in that cohort in January and February? Thanks. Harley Finkelstein: First of all, I think to your point, consumer preferences has shifted permanently. Again, the center of gravity was offline. It is now online. And there’s no going back to the pre-pandemic version of that. I also think there’s still massive runway in ecommerce in general. Remember, we are still sub 30% ecommerce penetration in North America. It’s only slightly higher in the UK, but still there’s so much headroom and there’s so much room for ecommerce to grow. So again, when you combine consumer preference with making it easier to buy online and buy on your favorite surfaces of which Shopify powers most of them, if not all of them, it makes for, obviously, more people buying from great brands that are on Shopify. In terms of the pandemic and what that’s caused, if you actually look at Australia and New Zealand, which is not an exact proxy for the rest of the world, but certainly provides some interesting insights. In those places where things have really opened up post-pandemic, we’re actually not seeing any slowdown whatsoever in terms of consumers buying from our merchants. In fact, online GMV remains in elevated levels beyond in those places. So I don’t think the consumer preference shift that happened through COVID was a temporary thing. Again, the center of gravity is now online. Consumers want to buy and they’re voting with their wallets to buy from independent direct-to-consumer brands of which Shopify has the majority of them, and I think that you’re going to continue to see this trend continue well beyond the pandemic. Again, ecommerce is still really quite small relative to total retail, and it will continue to grow really nicely. Katie Keita: Thanks, Brent. Operator: Our next question comes from Darren Aftahi of ROTH Capital Partners. Please go ahead. Darren Aftahi: Good morning. Thanks for taking my question. Maybe just to piggyback on what you said, Harley, I’m curious with the rollout in North America of more vaccines in April, and this is maybe more of a real-time question, I’m curious if you guys have seen any change in terms of the cadence of your merchants business, say, versus the early months of the year? Harley Finkelstein: Yes. So as I mentioned, we have not seen that at all. We have not seen a slowdown. We mentioned merchant growth remained elevated in Q1. We’ve seen digital increasingly become the center of gravity. Growth is strong across all our regions. We also had record plus ads driven by both upgrades, but also new brands joining Shopify and obviously strong international growth in Q1 as well. So on the merchant side, we’re not seeing any of that at all. And then on the GMV side, obviously, with triple digit growth in GMV year-over-year, that certainly doesn’t seem to be an issue. The reason I brought up Australia and New Zealand, again, it’s not an exact proxy for the rest of the world, but it does provide some indication that this new trend, that this new buying behavior in the way that retail operates, is a permanent shift long after the pandemic is over. I think between those two things, it’s quite clear that this is not a temporary thing. We will continue to see both merchant ads and GMV continue to increase. Katie Keita: Thanks, Darren. Operator: Our next question comes from Ygal Arounian of Wedbush Securities. Please go ahead. Ygal Arounian: Hi. Good morning, guys. I just wanted to ask on the drivers of merchant growth and how they’ve changed as you expect merchant growth to remain at a level not as high as last year, but higher than any other year, kind of how they flowed since the beginning of the pandemic. We’ve seen a lot of new business creation in the U.S. Is it larger merchants that were already online -- at this stage that were already online before and now are taking the next step in investment? I know you’re still getting a lot of new merchants coming on board. What do you think are the big drivers as we go through the rest of this year? And what are the areas of investment that those merchants are the most looking towards for you guys to top them out with? Thanks. Harley Finkelstein: I think the advantage of the Shopify business model, it’s not an or, it’s an and. On the early side of merchant creation, again, we’ve all been watching that business registrations are increasing, both in the U.S. but around the world. Certainly, we’re seeing that with more merchants joining Shopify that are first-time entrepreneurs. And one of my favorite stats to talk about is that every 28 seconds, a new entrepreneur gets there for sale on Shopify. That is really important because that shows that we’re not only growing our piece of the pie, but we’re growing the pie itself. We are growing the actual market. On the other side, when you look at some of the brands I mentioned around Plus, whether it’s Kraft Heinz or WWE or Fabricville or some of the large retailers – excuse me, department stores that have been around for 200 years, we are seeing people enter this digital commerce realm, in some cases, that never participated. In other cases, they migrated from some enterprise ecommerce provider that simply has not been able to be future-proofed, there’s no integrations to the right platforms and services and doesn’t have things like Shop Pay integrated. So it’s not one of those things. I think the advantage of the Shopify business model is all of those things. We are creating new entrepreneurs and we’re trying to make it as easy as possible for them to be more successful. But also on the Plus side, we are seeing, for the first time, obviously, we have the upgrades, which are these homegrown success stories that start on our platform around their mom’s kitchen table and grow to be category leaders. We love those stories. Those are some of our favorites, but we’re also seeing very established brands, again, like Heinz or Chex from General Mills for the first time ever enter the direct-to-consumer model, and they’re doing it all on Shopify. And so I think that needs to continue. We don’t just want to focus on the larger brands. We also want to help create the next larger brands with aspirational entrepreneurs that start on Shopify. Katie Keita: Thanks, Ygal. Operator: Our next question comes from Brian Peterson of Raymond James. Please go ahead. Brian Peterson of Raymond James, your line is live. Brian Peterson: Sorry. Mute button caught me there. Apologies. So thanks for taking the questions. So, Amy, talking about the investments back into the platform, I can appreciate that GMV was above plan this quarter. But just curious, how is hiring trending the pace of investments? And can you redeploy a lot of that investment into the key growth areas in 2021? Amy Shapero: Yes, Brian, that’s certainly our aim, given the opportunities that Harley just pointed out, that’s still in front of us. We see tremendous growth opportunities. And so we will continue to invest back into the business as aggressively as we can. As I said from my opening remarks, we do expect OpEx spend to accelerate each quarter for the remainder of the year. We are seeing velocity in engineering, hiring and sales and marketing hiring as we lean into the opportunities, and we resource those growth initiatives that I talked about earlier, Shopify Fulfillment Network, Shop app international. Across the board, we have these opportunities and we will lean into them. So yes, we did post adjusted operating income this quarter, but we fully expect to continue to invest back into the business aggressively. Katie Keita: Thanks, Brian. We probably have time for only one more question, Arielle. So let’s take this one last question. Operator: Our final question comes from Deepak Mathivanan of Wolfe Research. Please go ahead. Deepak Mathivanan: Great. Thanks for squeezing me, guys. Amy, I wanted to ask about your comments on the convergence and growth between merchant solutions and subscriptions? Obviously, you’re seeing penetration gains in payments continue. Plus business is very strong. And also the sales volume for the merchants are growing, like Harley just mentioned. Are you thinking that volume reversal potentially from consumer spend on Shopify stores could offset some of these continued tailwinds for the growth rates to sort of converge? Can you give some additional color to that, that would be great? Amy Shapero: Yes. That’s purely driven by the fact that we don’t expect the surge in ecommerce that happened in 2020 to repeat. We fully expect ecommerce to continue to grow, but at a more normalized pace. So you just won’t see the surge. So from a year-over-year growth perspective, that will impact the growth of merchant solutions. I fully expect increased adoption of our merchant solutions and a continued increase in our take rate for the year. Operator: This concludes the question-and-answer session. I would like to turn the conference back over to Katie Keita for any closing remarks. Katie Keita: All right. Thanks, Deepak, for that last question. And thanks everybody for participating today and leaving time for everyone. We might have gotten to a record number of questions, and have a great day. Bye-bye. Operator: This concludes today’s conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.
Shopify (NYSE:SHOP) Maintains "Overweight" Rating by Morgan Stanley
- Morgan Stanley reaffirms its "Overweight" rating for Shopify (NYSE:SHOP), signaling strong confidence in the company's growth trajectory.
- Shopify's stock performance outpaces the S&P 500, with a 48% increase in November 2024, driven by high transaction volumes during the holiday season.
- The company's strategic partnerships and a significant role in the e-commerce software market are key factors in its continued success.
On December 3, 2024, Morgan Stanley reiterated its "Overweight" rating for Shopify (NYSE:SHOP), with the stock priced at approximately $111.87. This decision reflects confidence in Shopify's growth potential, as the company continues to expand its influence in the e-commerce sector. Shopify's strategic partnerships and robust performance have positioned it as a key player in the industry.
Shopify's business is experiencing significant growth, reminiscent of the surge it saw during the pandemic lockdowns. In November 2024, Shopify's stock price increased by 48%, nearly doubling the year-to-date rally of the S&P 500. This impressive performance is driven by strong transaction processing volumes, particularly during the holiday season, as highlighted by S&P Global Market Intelligence.
The company's market share in the global e-commerce market has reached 16%, matching its peak during the pandemic. This resurgence is supported by a consistent increase in sales volumes, with over 20% year-over-year growth for each of the last five quarters. Shopify's platform facilitated over $270 billion in gross merchandise volume, underscoring its significant role in the e-commerce software market.
Shopify's financial results for the third quarter of 2024 revealed a GMV of nearly $70 billion, marking a 24% increase compared to the previous year. This growth has translated into a 26% year-over-year increase in Q3 revenue, reaching nearly $2.2 billion. Additionally, Shopify's free-cash-flow margin reached an impressive 19%, further solidifying its financial health.
Despite the competitive nature of the industry, Shopify has consistently pursued partnerships, even with direct competitors, to expand its offerings. Recently, Shopify partnered with three major tech giants to bolster its growth and maintain its competitive edge. This strategic approach highlights Shopify's commitment to collaboration as a means to enhance its services and continue its upward trajectory in the e-commerce landscape.
Shopify (NYSE:SHOP) Earnings Report Highlights
- Shopify's revenue growth of 26% year-over-year, surpassing estimates.
- The company reported an EPS of $0.29, missing the expected $0.37.
- Shopify's valuation metrics indicate investor confidence despite a high P/E ratio.
Shopify (NYSE:SHOP) is a leading e-commerce platform that enables businesses to create online stores. It offers a range of services, including payment processing, marketing, and shipping solutions. Shopify competes with other e-commerce giants like Amazon and eBay. The company has gained attention for its innovative approach and strong market presence.
On November 12, 2024, Shopify reported earnings per share (EPS) of $0.29, which fell short of the estimated $0.37. Despite this, the company generated revenue of approximately $2.23 billion, surpassing the estimated $2.15 billion. This revenue growth reflects a 26% increase year-over-year, as highlighted by Zacks Investment Research.
This positive outcome has captured the attention of investors and analysts, positioning Shopify as a key player in the market. The company's management remains optimistic about maintaining a similar growth trajectory for the fourth quarter.
Despite a high price-to-earnings (P/E) ratio of 113.64, Shopify's valuation metrics indicate investor confidence in its growth potential. The price-to-sales ratio of 18.68 and enterprise value to sales ratio of 18.63 suggest that investors are willing to pay a premium for each dollar of sales. Shopify's low debt-to-equity ratio of 0.10 and strong current ratio of 7.32 highlight its financial stability.
Shopify's strategic shift towards enterprise opportunities is expected to drive future growth. The company's ability to sustain margin expansion and increase its valuation will depend on continued growth and strategic execution. As Shopify navigates a competitive environment, its focus on enterprise solutions could enhance its growth outlook and market position.
Shopify Stock Gains 2% Following Evercore Upgrade
Shopify (NYSE:SHOP) shares rose more than 2% pre-market today after Evercore ISI upgraded the company to Outperform from In Line, setting a price target of $75 per share. Shopify shares have fallen 15% year-to-date, but Evercore sees this as a prime opportunity to invest in a top-tier e-commerce platform.
Evercore expressed strong confidence in Shopify's long-term potential, highlighting its substantial total addressable market of approximately $850 billion, robust competitive position, opportunities in higher market segments, proven record of product innovation, and the potential for significant profitability growth.
Additionally, the analysts noted that recent disappointing operating margin outlooks from the last two earnings reports have led to significant share price and estimate corrections, which they believe have mitigated risks associated with Shopify shares.
The firm also praised Shopify's strategic decision to focus on social media marketing to boost international growth, considering it both tactically and strategically sound.
Goldman Sachs Upgrades Shopify to Buy: A Turning Point for the E-Commerce Giant
- Goldman Sachs upgraded Shopify to a Buy rating, signaling a positive outlook on the company's future performance.
- Despite a 40% decline from its high in February and a 90% drop during 2021 and 2022, Shopify's strategic focus on core business segments suggests potential for recovery.
- The company's shift towards higher-profit software offerings and the robust adoption of Shopify Plus highlight its strength and potential for margin expansion.
Goldman Sachs recently upgraded Shopify (NYSE:SHOP) to a Buy rating from a Neutral stance, a significant change that caught the attention of investors and market watchers alike. This upgrade, announced on May 21, 2024, when the stock was trading at $57.02, signals a positive shift in the investment bank's outlook on Shopify's future performance. The news, as reported by StreetInsider, highlights a turning point for the e-commerce platform, which has faced considerable challenges over the past few years.
Shopify has been through a rough patch, with its stock price declining by about 40% from its high in February, despite the broader market reaching record highs. This downturn is part of a longer trend of struggle for Shopify, which saw its stock value plummet by 90% during 2021 and 2022. The situation seemed to hit a low point when shares dropped over 15% following weak guidance from the company. However, CEO Harley Finkelstein's statement that this is "the strongest version of Shopify in our history" suggests a strong belief in the company's resilience and potential for growth.
The challenges Shopify faced included higher operational expenses and concerns over revenue growth, particularly in the spring 2024 quarter. Despite these hurdles, the company's focus on its core segments—subscription solutions and merchant solutions—remains strong. Shopify's decision to divest its low-margin in-house logistics and merchandise warehousing segment is a strategic move to concentrate on higher-profit software offerings. This shift, although contributing to a perceived drag on year-over-year revenue growth, is seen as a step towards focusing on more profitable areas of the business.
The recent dip in Shopify's stock, attributed to concerns over slowing revenue growth and challenges in achieving net profitability, presents a potential buy-the-dip opportunity for investors. The company's robust adoption of Shopify Plus and its significant contribution to margin expansion underscore the strength of its business model. Despite the stock's recent performance, with a decrease of approximately 3.21% to $57.02, Shopify's market capitalization of roughly $73.4 billion and a trading volume of about 13.35 million shares reflect its substantial presence in the market.
In summary, Goldman Sachs' upgrade of Shopify to a Buy rating marks a pivotal moment for the company, suggesting a brighter outlook ahead. Despite facing significant challenges, Shopify's strategic focus on its core business segments and the strong adoption of Shopify Plus indicate potential for recovery and growth. Investors and market watchers will be keenly observing how these strategies unfold in the coming months, potentially leading to a rebound in Shopify's stock performance.
CIBC Upgrades Shopify (NYSE:SHOP) to Outperform
On Thursday, May 9, 2024, CIBC updated its grade for Shopify (SHOP:NYSE) to Outperform, maintaining a hold action. This assessment came as Shopify's stock was trading at $62.22. CIBC's reiteration of the Outperform grade suggests they see the recent selloff following Shopify's earnings as a buying opportunity. This perspective was shared in a publication by TheFly, highlighting the potential upside seen by CIBC in Shopify's current valuation. The adjustment in CIBC's outlook for Shopify reflects a broader sentiment among financial analysts, who remain optimistic about the company's long-term growth prospects despite short-term challenges.
Shopify's stock experienced a significant drop of approximately 20% following its first-quarter earnings report, which did not meet the guidance expectations set by Wall Street. This decline was notably the most significant in the company's history, plunging the stock price during midday trading on Wednesday. Despite this, analysts at Oppenheimer maintained a positive outlook on Shopify, reaffirming an outperform rating and setting a price target of $90 for the stock. This target suggests a potential upside of about 45% from the stock's price on Thursday, indicating a strong belief in the company's recovery and future growth.
The drop in Shopify's stock price came after the company's earnings report revealed solid first-quarter results but provided guidance for the second quarter that fell short of Wall Street's expectations. Specifically, Shopify reported adjusted quarterly earnings of $0.20 per share, which exceeded the Zacks Consensus Estimate of $0.16 per share, marking a substantial improvement from the earnings of $0.01 per share reported a year ago. This performance, representing an earnings surprise of 25%, alongside revenues of $1.86 billion that also surpassed the Zacks Consensus Estimate, underscores the company's operational strength. Furthermore, Shopify's gross merchandise volume increased by 23% to $60.9 billion, exceeding consensus expectations and highlighting the platform's growing transactional volume.
However, the company's warning of a potential slowdown in revenue growth for the current quarter, attributed to the sale of its logistics business last year, has cast a shadow over its near-term financial outlook. This news adversely affected the net worth of Shopify's billionaire CEO, Tobias Lutke, erasing over a billion dollars from his fortune. Despite these challenges, the fundamentals of Shopify's business remain strong, as evidenced by its ability to exceed headline estimates and its substantial year-over-year growth in revenues and gross merchandise volume.
Shopify's current market position, with a stock price now at $62.33, reflects the volatility and challenges the company faces in a competitive e-commerce landscape. Despite the recent downturn, the company's market capitalization of about $80.23 billion and trading volume of 11.03 million shares demonstrate significant investor interest and confidence in its long-term potential. As Shopify navigates through these challenges, the support from financial analysts like CIBC and Oppenheimer underscores a belief in the company's resilience and capacity to capitalize on future opportunities in the e-commerce sector.
Shopify Inc. (SHOP:NYSE) Sees Significant Price Target Increase by CIBC Analyst
On Thursday, May 9, 2024, Todd Coupland of CIBC set a significant price target for Shopify Inc. (SHOP:NYSE), suggesting that the stock could see a substantial increase to $85, which would be a 36.61% jump from its current price of $62.22. This optimistic outlook comes in the wake of Shopify's earnings selloff, which Coupland views as a prime buying opportunity for investors. This perspective was shared in a report by TheFly, indicating a bullish stance on Shopify despite recent market turbulence.
Shopify, a leading cloud-based, multi-channel commerce platform, faced a sharp decline of about 18.6% in its stock price on May 8, 2024, following the announcement of a lower-than-expected revenue forecast for the second quarter of the year. However, it's important to note that Shopify's first-quarter earnings for 2024, announced before the market opened on the same day, painted a different picture. The company reported adjusted quarterly earnings of $0.20 per share, surpassing the Zacks Consensus Estimate of $0.16 per share. This marked a significant improvement from the $0.01 per share earnings reported in the previous year, showcasing an earnings surprise of 25%.
Furthermore, Shopify's revenue for the quarter ending in March 2024 reached $1.86 billion, exceeding the Zacks Consensus Estimate by 1.36%. This revenue figure represents a considerable growth from the $1.51 billion reported in the same period the previous year. The company also highlighted a 23% increase in gross merchandise volume (GMV), which amounted to $60.9 billion, surpassing consensus expectations. This indicates a robust growth trajectory for Shopify, underscoring the platform's expanding reach and effectiveness in facilitating e-commerce transactions.
Despite the recent selloff, Shopify's stock is currently trading at $62.33, with a slight decrease of $0.4 or -0.64%. The trading session saw fluctuations between $61.61 and $63.77. Over the past year, Shopify's shares have experienced highs and lows, reaching up to $91.57 and dipping to $45.5, respectively. With a market capitalization of approximately $80.23 billion and a trading volume of 8.54 million shares, Shopify remains a significant player in the Internet - Services industry, demonstrating resilience and potential for growth amidst market challenges.
The analysis by Todd Coupland and the subsequent financial performance of Shopify highlight the company's ability to exceed earnings expectations and continue growing its revenue and GMV. This suggests that, despite short-term market reactions to its revenue forecast, Shopify's underlying business remains strong and capable of delivering value to its shareholders. Coupland's price target reflects confidence in Shopify's long-term prospects, presenting a compelling case for investors to consider Shopify as a viable investment opportunity, especially in the wake of its recent price dip.
Scotiabank Updates Shopify Rating to 'Sector Perform', Raises Price Target
Scotiabank Updates Shopify Rating to "Sector Perform"
On Thursday, May 2, 2024, Scotiabank's update on Shopify (SHOP:NYSE) to a "Sector Perform" rating and the decision to maintain a "hold" action signifies a nuanced view of the company's stock. This adjustment, made when the stock was priced at $71.13, and the increase in the price target from $70 to $80, as reported by TheFly, suggest a cautiously optimistic outlook on Shopify's future market performance. This perspective seems to be rooted in a detailed analysis of Shopify's operational and financial metrics, as well as market conditions that could influence its stock price.
The anticipation surrounding Shopify's earnings report for the quarter ended March 2024 adds another layer of context to Scotiabank's rating adjustment. According to Zacks Investment Research, Shopify is expected to report a year-over-year increase in earnings and higher revenues. This potential for growth, coupled with the possibility of surpassing Wall Street's consensus expectations, could be a driving factor behind Scotiabank's revised price target. The focus on whether Shopify can deliver a positive earnings surprise, with a projected quarterly earnings of $0.16 per share, underscores the critical nature of the upcoming earnings report in shaping investor sentiment and stock valuation.
The recent performance of Shopify's stock further complements Scotiabank's analysis and expectations. With a price increase of $1.83, marking a 2.60% change, and the stock currently priced at $72.23, there is evidence of positive market movement. This fluctuation within a trading day, ranging from a low of $70.23 to a high of $72.7, alongside a significant year-over-year low and high, highlights the stock's volatility and the market's responsive nature to Shopify's operational successes and challenges. The company's impressive market capitalization of approximately $92.97 billion, coupled with a trading volume of about 2.59 million shares, further illustrates its substantial presence and investor interest in the stock market.
The interplay between Scotiabank's updated rating and the anticipation of Shopify's earnings report underscores the intricate relationship between analyst ratings, earnings forecasts, and stock market performance. Scotiabank's decision to adjust its price target ahead of the earnings report suggests a belief in Shopify's potential to meet or exceed earnings expectations, which could positively impact its stock price. This strategic analysis, grounded in financial metrics and market trends, provides investors and stakeholders with a comprehensive view of Shopify's current position and future prospects in the competitive e-commerce landscape.
