The Rapidly Evolving E-Commerce Promoter：Shopify
1. PROFILE
A Canadian online e-commerce solutions company that helps businesses quickly and easily set up cloud e-commerce sites, connect networks, mobile devices and social networking sites, and achieve one-stop management of merchandise inventory, order processes and payments , logistics and customer relationship and data analysis capabilities. Shopify’s large customers include Tesla, Nestle, GE, Red Bull, etc.
Shopify was listed on the NYSE in May 2015, ticker is SHOP, with a market capitalization of about $42 billion, which surpassing Twitter and eBay!
Milestone：
-Launched more than 2,000 e-commerce platforms
-More than 800,000 merchant customers in 175 countries
2. COMPANY INTRODUCTION
Business Model
Shopify’s revenue comes from Subscription Solutions & Merchant Solutions：
-Subscription Solution：Account for 40% of revenue
Includes monthly fees, site template themes, and various official or third-party apps on Shopify App Sotre, which can be used to build a variety of sales processes, marketing and data analysis functions.
Monthly Fees：Basic Shopify US$29； Shopify US$79；Advanced Shopify US$299
-Merchant Solution：Account for 60% of revenue
Shopify Payments, Shopify logistics and other trading services, and the Shopify POS machine for physical access.
Shopify’s Services
・Shopify Capital
Provide funds needed to open a store.
・Shopify Partner
Shopify Partners can help merchants solve management and marketing problems, as well as Apps and software development.
・Shopify Plus
Enterprise-class solution for advanced applications and API capabilities.
・Shopify Payment
Customers can pay directly by credit card, without third-party payment.
・Shopify Fulfillment Network
Shopify’s intelligent logistics center, which uses machine learning and other technologies for inventory distribution to achieve low cost and efficiency.
・Shopify Shipping
Calculate the deliver fees based on the type of goods or the location; cooperate with international shipping companies, like DHL.
Business Structure
Shopify doesn’t have to bear the business risks of the merchants. Even if the merchants fail their businesses, Shopify can still continue to grow as long as other merchants start their own business.
3. FINANCIAL PERFORMANCE
Long-term Loss？
As we can see from the condensed income statement, the company’s net profit under GAAP has always been a loss. When it turned to non-GAAP net profit, it took Stock Based Compensation into consideration, and it turned positive!
(Interest income under the non-operating income, which come from the loans issued by Shopify Capital!)
Despite years of losses under GAAP, the company’s revenue has maintained very strong growth. From 2016 to 2018, revenue has nearly tripled, and will continue to grow at the same pace in the future.
Even if the net profit is a loss, we can still expect such a fast growing company as Shopify start making money soon.
As we can see from another graph, Shopify maintains a steady capital expenditure (Capex) to support its rapid development; and free cash flow (FCF) shows a gradual upward trend, which is expected to turn from negative to positive in 2019.
2Q19 Performance & Highlights
-Performance
Revenue：US$362M, 48% YoY, 13% QoQ
Revenue of Subscription Solution：US$153M, 38% YoY, 9% QoQ：
The growth momentum comes from merchants continue to join Shopify platform, resulting in an increase in MRR (Monthly Recurring Revenue).
Revenue of Merchant Solution：US$209M, 56% YoY, 16% QoQ：
The growth momentum comes from the increase in GMV(Gross Merchandise Volume)，also benefit from the growth of Shopify Capital & Shopify Shipping.
Operating Loss：US$40M(VS. US$31M last year), account for 11% revenue
Adjusted Operating Income：US$4.8M(VS. US$4.3M last year), account for 11% revenue
Net Loss：US$28M, EPS $0.26(VS. US$24M, EPS $0.23 last year)
-Highlights
・New generation of Shopify POS software
Faster, more intuitive, and more scalable for merchants to develop physical business.
・Language Options
Add more language options, including Traditional Chinese, Simplified Chinese, Dutch, Hindi, Korean, etc.
・Shopify Payments
Increase the Dutch local payment-ideal; increase the use of Denmark’s VISA-Dankort(Danish National Debit Card) and use in 13 other countries.
・Shopify Capital
A total of US$ 93M loan was issued in this quarter(VS. US$69M last year, 36% YoY)
Outlook
-3Q19
・Revenues in the range of US$377–382M
・GAAP Operating Loss in the range of US$44–47M
・Adjusted Operating Income in the range of US$0–3M, with stock-based compensation expenses and related payroll taxes of US$47M
-2019 Full Year
・Revenues in the range of US$1.51–1.53B
・GAAP Operating Loss in the range of US$145–155M
・Adjusted Operating Income in the range of US$20–30M, with stock-based compensation expenses and related payroll taxes of US$175M
4. Prospect
Competition
Although they all have a relationship with “e-commerce”, it is not appropriate to take Alibaba and Amazon directly with Shopify. Shopify provides merchants to set up a platform, rather than Taobao to establish a platform for individuals, businesses to sell products, or Amazon’s B2C or B2B2C sales. Therefore, Shopify should be compared with companies of the same nature.
Adobe acquired Magento, which with a similar company type to Shopify, in 2018：
We can see the differences between two companies, the expenses of Shopify is more attractive, and it is very advantageous in the era of the rise of personal businesses.
Potential of E-Commerce
According to Stastata, global e-commerce sales are estimated at $4.5 trillion in 2021, with 20% of CAGR (Compound Annual Growth Rate). Such demand will provide strong growth momentum of Shopify.
E-Commerce Revolution
Research by companies such as McKinsey shows that some developing countries are using e-commerce as a way out of poverty, many entrepreneurs and individuals have started their own online business. This will also create countless opportunities for Shopify.
In 2017, the number of Shopify merchants was about 500,000. With the rise of e-commerce in various places, the number of merchants has exceeded 800,000 in the middle of 2019.
Acquisition
Shopify has acquired 3 companies since 2019：
・Helpful.com：Use AI technology to develop mobile device products
・Handshake Corp：Online trading platform for wholesale companies
・Vinderbit Pty：Application supplier
Last year, Shopify also acquired several companies to expand the range of products and services, increase the competitiveness on the B2B side.
Make Good Use of Resources
As Shopify’s founder, Tobias said: “Use limited resources to create advantages, and avoid putting resources on something useless.”
Shopify is a company that adhere to the concept, making merchants to focus on running their business without having to worry about starting from scratch.
Merchants can use the resources that Shopify provide. On the other hand, Shopify can also benefit from the growth of the merchants, which will bring considerable opportunities to Shopify.
