Right off the bat, when you look at the recent performance of Shopify Inc (US) (NYSE:SHOP) and its overall business growth, you intuitively know you’re dealing with a leading tech company. With traditional retail struggling, going to the opposite end of the spectrum (i.e., cloud-based, multi-channel e-commerce) is a good place to find a winner.
And in SHOP, we certainly have a winner.
As of August, SHOP now powers more than half a million businesses globally. This merchant growth on the Shopify platform has averaged out to an annual rate of 74% since 2012. It’s an affirmation of the relevance and real value add that SHOP offers merchants. And it’s that in addition to the customer loyalty that will drive even further adoption worldwide.
SHOP Inc’s Merchant Growth
This past quarter had a strong showing of continued momentum “with a 56% increase in North America, 82% increase in Asia, 168% increase in South America, and 70% increase in Africa.” Most of their clients are small and medium-sized businesses (SMEs) and benefit immensely from the backend support that SHOP provides.
But then SHOP doesn’t only focus on the smaller fish in the sea. Adoption by larger brands has accelerated and driven a strong second quarter.
The other component supporting that strong performance can be attributed to constant platform innovation. Shopify Pay is now up and running, which will help sellers increase conversion at checkout by streamlining the checkout process, especially on mobile devices. It links to Shopify Payments, which went live in New Zealand (early innings for Payments as this is just country number six).
Digging into SHOP’s Quarter
As I break out the topline figures, the second quarter 75% increase in revenue year-over-year comes from both Subscription Solutions and Merchant Solutions. Both segments are firing on all cylinders.
Subscription Solutions revenue grew 64% to $71.6 million where monthly recurring revenue has seen a rapid uptake with what SHOP indicates is a record number of new merchants joining the platform. The recurring nature of subscription revenue is great from a cash flow perspective as it guarantees inflows (obviously provided there aren’t cancellations).
Shopify is doing a good job of keep this revenue stream continuing to flow. A year ago as of the end of June, its contribution was $14.4 million compared to the most recent quarter of $23.7 million, a 64% increase. As Shopify Plus scales I expect it to become a larger part of that growth.
Merchant Solutions also did its part in contributing to the overall growth with the segment growing 86% year-over-year.