Shopify Emerges As A Covid Beneficiary With Stellar Results

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Ontario-based Shopify (NYSE:SHOP) continues to deliver stellar results. It was a strong year for the company that saw record number of merchants and value of transactions on its platform. The company continues to build its platform to cater to the emerging demands of global merchants.

Shopify’s Financials

Shopify’s fourth quarter revenues grew 41% to $1.38 billion, ahead of the market’s forecast of $1.34 billion. GAAP net loss was $371.3 million, compared with a net income of $123.9 million a year ago. Non GAAP earnings dropped from $1.58 per share a year ago to $1.36 per share, yet surpassed the market’s forecast of $1.33 per share.

By segment, subscription revenues grew 26% to $351.2 million. Merchant solutions revenue rose 47% to $1.209 billion.

Among other metrics, gross merchandise volume (GMV) rose 31% to $54.1 billion. Gross Payments Volume (GPV) grew 45% to $27.7 billion.

Revenue for the full year grew 57% to $4.612 billion.

The company had a very strong year with revenues for the year growing three times of what they had seen in 2019. There were over14,000 merchants on Shopify Plus with nearly 4,000 of them joining the network in 2021. Its merchant GMV more than doubled from 2019 levels, to $175 billion in 2021.

Like the previous quarter, Shopify did not provide a forecast for the quarter.

Shopify’s Growth Focus

For the current fiscal, Shopify is focusing on four key elements – first building buyer relationships; second, going global; third, going from first sale to full scale, and finally, simplifying fulfillments.

With respect to their objective of building strong buyer relationships, it is releasing new offerings that will help merchants meet buyers and serve their customers wherever they are. Recently, Shopify announced that merchants in the US will be some of the first to accept contactless payments through iPhone. This will be combined with its Point of Sale Pro offering, allowing them to connect offline operations to a centralized dashboard, providing a single view of their centralized dashboard. This will give merchants a single view of their business across every sales channel and provide buyers with an easy way to shop.

Earlier last year, Shopify had introduced TikTok shopping to tap into the social commerce market. In October last year, it launched its Spotify channel for musicians. Since the introduction of the channel, more than 100,000 merchant creators have installed the channel and merchants are starting to sell using Spotify integration.

On the second objective, Shopify Markets is helping merchants go global by optimizing international selling to improve sales conversion and create a better customer experience. Since its roll out in late January, thousands of merchants have already switched to using Shopify Markets. They are leveraging features such as currency conversion, language translation of store content, and calculation and collection of duties and taxes. Earlier this year, it also launched the JD marketplace sales channel, providing its merchants with access to China’s e-commerce market which is estimated to be worth $3.3 trillion by 2025.

On their third objective of growing from first sale to full scale, Shopify is providing merchants with the right tools to move from one phase to the next. Recently it launched its money management product, Shopify Balance, to allow eligible merchants in the US to manage their business finances in one place so they can better manage their cash flow and plan for the future. Services like Shopify Capital that offer funding requirements, and Shopify Plus are helping brands continue their growth journey while remaining on Shopify’s platform. It is working on adding additional capabilities that will add to the ability to sell in new and creative ways, such as selling NFTs.

Finally, with regards to fulfillment, Shopify continues to consolidate its network to larger facilities. It is working on unifying the warehouse management software that will help them deliver packages in two days or less to more than 90% of the US population.

Meanwhile, Shopify continues to invest in its partner ecosystem. It had recently announced its plans to eliminate its revenue share on the first $1 million of app and theme earnings annually made by these developers. By the end of 2021, its app developer partners grew their earnings on Shopify by 76% to $411 million, and the number of app developer partners that had an app used by merchants in 2021 grew by nearly one-third over 2020. Over the past 12 months, 40,000 partners referred at least one merchant to Shopify, highlighting the importance of its PaaS offering.

Shopify has benefited from Covid-triggered acceleration of e-commerce that was driven by lockdowns and government stimulus. Till the end of 2021, the e-commerce portion of global retail market was still higher than it was two years ago. Analysts and the retail industry are watching closely to figure out if that trend will continue as lockdowns ease and inflationary pressures mount up. Shopify will bank on its new offerings to keep that momentum going.

Shopify’s stock is trading at $656.88 with a market capitalization of $82.70 billion. It had touched a 52-week high of $1,762.92 in November last year. The stock hit a 52-week low of $655 last week.

Disclosure: All investors should make their own assessments based on their own research, informed interpretations, and risk appetite. This article expresses my own opinions based on my own research of product-market fit, channel execution, and other factors. My primary interest is in product strategy. While this may have bearing on stock movements, my writings tend to focus on long-term implications. The information presented is illustrative and educational, but should not be regarded as a complete analysis nor recommendation to buy or sell the securities mentioned herein. I am not a registered investment adviser and I am not receiving compensation for this article.

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Photo Credit: athree23 from Pixabay