Analysis Of Shopify’s Long Term Strategy

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Ontario-based Shopify (NYSE:SHOP) continues to deliver stellar results. The company continues to add several new features to its platform to help merchants reach a wider audience.

Shopify’s Financials

Shopify’s third quarter revenues grew 96% to $776.4 million, significantly ahead of the market’s forecast of $657.92 million. Net income for the quarter came in at $191 million, compared with a net loss of $72.8 million reported a year ago. On an adjusted basis, earnings grew to $1.13 per share, surpassing the market’s forecast of $0.50 per share.

By segment, subscription revenues grew 48% to $245.3 million, ahead of the estimates of $192 million. Merchant solutions revenue rose 132% to $522.1 million.

Among other metrics, gross merchandise volume (GMV) rose 109% to $30.9 billion in the quarter. Gross Payments Volume (GPV) grew 42% over the year to $14 billion. Shopify Shipping saw strong adoption in the quarter. The shipping service is being used by 51% of total eligible merchants across the United States and Canada, compared with 45% a year ago.

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

Shopify’s Growth Focus

During the quarter, Shopify started rolling out its Buy Now, Pay Later Shop Pay instalments in the US. The instalments will allow the merchants to provide buyers additional purchasing options by paying in instalments without any interest or fees. With the instalment method becoming increasingly popular, businesses that have Buy Now, Pay Later options are seeing an increase in repeat customers. To help grow adoption of the payment method, Shopify has integrated Shop Pay into the Shop app.

Its checkout solution Shopify Checkout allows merchants the ability to offer subscription services and post purchase upsells. Previously, Shopify merchants could only offer subscriptions and post-purchase upsells through apps that weren’t fully integrated with the platform and Shopify Checkout. Now, merchants are able to download fully integrated apps from its app store to enable smooth buying experiences. Access to subscription APIs is directly available and while orders and customer data will remain within Shopify, merchants will be able to manage transactions, gain actionable insights, and benefit from all of its platform features in one place.

It recently announced a collaboration with TikTok. As part of the integration, Shopify is allowing a select number of Shopify merchants to sell directly from their videos and profile pages. The channels are leveraging Shopify’s expanding marketing capabilities and helping drive traffic into the merchants’ stores. Features such as TikTok for Business are making relationships with buyers stronger.

Since last summer, Shopify has been focusing on growing its fulfillment network through partnerships and acquisitions. Over the next five years, it plans to spend $1 billion in building an asset-light network that uses the company’s software to connect merchants with warehouse operators. The service will use machine learning to advise customers where to place inventory, which items to restock and to route orders to the closest fulfillment center. It is positioning its network as an affordable alternative to fulfillment services such as those offered by Amazon. Analysts believe that US logistics providers will generate an estimated $53.3 billion in e-commerce revenue this year, growing 23% over the year. The growth has accelerated due to the current pandemic conditions. Shopify’s fulfillment network is hoping to make a mark in this high growth segment.

The market is pleased with Shopify’s performance. Its stock is trading at $1,045 with a market capitalization of $127.4 billion. It had touched a 52-week high of $1,146.91 in October. The stock has been climbing from the 52-week low of $282.08 that it had fallen to in November last year.

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