Shopify
emerged as a clear victor from the pandemic-era boom in e-commerce. But now that consumers are shopping much like the way they were before we ever heard of the term Covid-19, some investors question whether the company can keep up its rapid growth levels.
At its first investor day since 2019,
Shopify
gave the markets a resounding “yes.”
“We’re growing faster than ever before,” said Bobby Morrison, chief revenue officer, at a presentation with investors. “We’re doing it profitably. We’re taking share in the market. And what we’ve built is starting at the system’s [base] layer and therefore it’s durable.”
Shopify stock has more than doubled this year, up 115%. The shares closed 3% higher Tuesday, as investors rallied over the company’s upbeat messaging.
It isn’t just the shares that have surged this year. Sales have risen as well, Shopify said, as more retailers sign up for the company’s services, which range from myriad e-commerce offerings to point-of-sale for bricks and mortar.
“We’re actually taking care taking share from the competition, and not just in the entrepreneur space, not just in mid market, but in large [companies] and enterprise,” said Morrison.
In the company’s latest quarter, Shopify saw gross merchandise volume (GMV) rise 22% year over year to $56.2 billion. Revenue increased 25% and gross profit jumped 36%.
Per Shopify, 10% of U.S. e-commerce sales flowed through Shopify this year. The figure was lower in Western Europe—with 6% of total Ecommerce—but the company sees that “growing fast.” New business bookings are a little over 100% from the first quarter of 2022 to the third quarter of 2023.
For investors, the question is now whether that growth is sustainable, wrote Morgan Stanley analyst Keith Weiss in a note ahead of the event.
Shopify says it is, adding that it has several growth drivers in the works, including expanding its offline point-of-sale services, working with bigger retailers, introduce new products, and continuing to streamline its logistics and operations.
Already, some of those initiatives are paying off. Point of sale is one of the company’s fastest-growing segments, which is expected to bring in $450 million in revenue this year.
Business with larger retailers is also booming. The company has partnered with several other service providers that can help build out its capabilities for catering to bigger companies. These partnerships could result in about $20 billion in additional GMV, Morrison said.
Management was quick to reassure investors that this growth wouldn’t come at the cost of profitability, as was the case last year, when the company recorded five consecutive quarters of unadjusted losses. In May, Shopify was forced to lay off 20% of its employees.
“We will be very mindful of adding head count in key geographies and areas of expertise,” said Jeff Hoffmeister, chief financial officer. “But we are not going to ramp this back up again.”
In the third quarter of 2019, operating expenses were 65% of revenue. By the same quarter this year, it was down to 45%. Profit margins have benefited from the more streamlined company as well. Gross margin for the third quarter was 52.6% up from 48.5% a year ago. The company believes gross margins will continue to stabilize, Hoffmeister said.
“We’re leaning into growth, but we’re being thoughtful,” he added.
Write to Sabrina Escobar at sabrina.escobar@barrons.com
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