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.
Other important metric for Shopify include Gross Merchandise Volume (GMV) and Gross Payments Volume (GPV) with the latter measuring the total value of goods going through their platform. High double digit numbers posted here as well. Simply put, more people are transacting through SHOP’s portal and more goods are being sold at a rapid rate.
Ultimately, SHOP is still losing money. I haven’t by any means overlooked the bottom line and earnings. However, given a stable cash balance (as of June 30, 2017, Shopify had $932.4 million in cash, cash equivalents and marketable securities, which includes the $560 million in net proceeds from Shopify’s offering of Class A subordinate voting shares) they are operating from a comfortable cash position. They have some cushion.
And on a final note, we can’t forget about mobile. Every payments company needs a mobile presence as increasingly our wallets have gone digital. Here too, SHOP hits it out of the part with mobile traffic to merchants’ stores continued reaching 72% of traffic and 60% of orders for the quarter. SHOP is strong across the board, which will continued to be reflected in the market.
As of this writing, Luce Emerson did not hold a position in any of the aforementioned securities.