Shopify Revenue Surges As Pandemic Brings More Business Online

E-commerce platform and payment provider Shopify reported its first-quarter revenue that surpassed analysts’ estimates as more businesses moved online to survive coronavirus pandemic.

The Ottawa-based company Shopify said in a statement that sales grew by 47% to $470 million from the same quarter a year ago. However, analysts expected revenues to come to around $443 million

The key metric of gross merchandise volume which represents all goods sold on the platform 46% to 17.42 billion compared to the previous year. Again, beating analysts expected volume to $16.68 billion.

While sales were booming, the company still posted a net loss of $31.4 million or 27 cents a share. However, on an adjusted basis, the company posted a profit of $22.3 million or 19 cents per share for the first quarter of 2020 compared with an adjusted profit of $7.1 million or six cents per share for the same period last year.

CEO Tobi Lutke said in the quarterly release,

We are working as fast as we can to support our merchants by re-tooling our products to help them adapt to this new reality. Our goal is that, because Shopify exists, more entrepreneurs and small businesses will get through this.

Moving Online

Shopify reported a fall of 71% in gross merchandise volume through its store point-of-sale as stores shut down due to pandemic between March 31 and April 24. Companies also downgraded from Shopify Plus to lower-priced plans.

Also, it throws light on the drop in point-of-sale purchases from the brick and mortar stores questions the sustainability of online switch. It provides store based point-of-sale systems to merchants to operate from a single platform in order to maintain online store and sales.

It is closely observing consumer spending habits online and the ability of brick-and-mortar retail merchants to shift sales online. According to the company statement, Shopify retailers managed to replace 94% of their store volume with online sales.

Retail merchants are adapting quickly to social-distance selling, as 26% of our brick-and-mortar merchants in our English-speaking geographies are now using some form of local in-store/curbside pickup and delivery solution, compared to 2% at the end of February.

Chief technology officer Jean-Michel Lemieux noted the surging demand and had U.S. Black Friday-type of traffic as businesses have used Shopify to stay afloat as nationwide lockdown forces retail store closure across the world.

Impact of COVID-19

This pandemic has strained small and medium-sized businesses and accelerated the shift of buying habits to eCommerce. Shopify introduced many initiatives to support merchants and help entrepreneurs start a business online during the ongoing COVID-19 pandemic, including, offering tools to businesses to open their own digital store online across channels including social media.

An extended 90 day free trial for new sign-ups, gift card capabilities to merchants, and introduction to in-store or curbside pickup and delivery options for greater flexibility in the movement of inventory between different locations.

The company stated that the new stores created on the platform grew 62% between March 13 and April 24 versus the prior six weeks, driven by both first times and established sellers. But is also added,

It is unclear how many in this cohort will sustainably generate sales, which is the primary determinant of merchant longevity on our platform.

What analysts  have to say

Few analysts still don’t see Shopify profitable enough in the future to justify the current stock price. They believe the rally is overdone.

Barry Schwartz, chief investment officer at Baskin Wealth in Toronto notes that as they grow, the company will face fierce competition from rival Amazon. He added,

They’re up against some very heavy hitters and I don’t think those guys are going to let Shopify win everything.

Buying it here at that valuation, you’re essentially saying, ‘I don’t care.’

Canaccord Genuity downgraded the stock, with a warning “we’re not entirely convinced” that gross merchandise volume “is as bulletproof as perceived.”