Another astonishing report. They maintained their Q2 pandemic performance. They also made good progress converting their pandemic era free trial into fee paying Shopify merchants.
Shopify managed to maintain their Q2 growth but with acceleration in Monthly Recurring Revenues (47% growth vs 21% in Q2) and Subscription revenues (48% growth vs 28% in Q2).
GMV growth dropped to 109% growth vs 119% growth in Q2.
Merchant Solutions dropped to 132% growth vs 148% in Q2
Total revenues $767.4m up 96% (Beat by $114.8m)
Adjusted (non-GAAP) Net Inc $140.8m or $1.13c per share (Beat by 0.63c) vs a loss of $33.6 million, or $0.29 per basic and diluted share, for the third quarter of 2019
51% of US/Canada eligible customers use Shopify Shipping (vs 45% previously)
$252.1 million in merchant cash advances and loans from Shopify Capital in the third quarter of 2020, up 79% vs $141.0 million previously
Partner ecosystem now stands at 37,400 vs 23,000 a year previously.
Really interesting to know the financial of all their newer small/medium customers. How many are on their last legs? How solid (or risky) will the lending portfolio prove out to be?
Has this been discussed on these boards. Sorry - newly back to boards (gone since AOL days on boards) but long time subscriber of MF services. Just came back to being a more active investor in Pandemic days.
Regarding your question - it is hard to say. One thing Shopify doesn’t do a good job of is provide transparency around customer metrics whether it be # of Shopify or Shopify + merchant numbers, retention rates, churn rates, net $ expansion rates etc so it is hard to answer the question.
At this point they say they only update on merchant count once a year at end of Q4 although even that was pretty vague this last year end.
All I can say is that given all of the additional services like Shopify Capital, Shopify shipping and Shopify fulfilment and Shopify payments as well as underlying GMV (up 109%) are all doing very well and better than just the subscription rate of growth then the underlying performance of the new merchants must be going ok on average. Occasionally they break out a cohort chart but haven’t seen an updated one for a while.
There’s some nice re-assuring detail in the prepared remarks and in the Q&A that doesn’t necessarily answer your question full on but does touch on related matters including some snippets/factoids around:
Performance of customer acquisition leaving aside the extended 90 day and 14 day free trial program - apparently both Shopify and Shopify Plus both had record all time high merchant additions in Q2 and Q3
The mix in Q3 has been more to Shopify merchant additions than Shopify Plus in total volume
The time it has taken between merchants signing on to Shopify to recording their first transactions/revenues is faster than ever
There has been a much higher rate of enterprise level merchants going straight to Shopify Plus than starting on Shopify and upgrading, than ever before. (They noted some significant logos). “More notable brands across a variety of verticals launch stores at Shopify Plus in our third quarter including the following. The global luxury brand, DIOR, women’s fashion brand BCBG Max Azria, motion picture production house Paramount Pictures, sustainable fashion brand, Magento, meat alternative food producer, Beyond Meat, nutrition bar company, Clif Bar, multinational telecommunications company, Telefonica and weight loss brand, Jenny Craig.”
There’s been a difference between conversion from free trial to fee paying merchant sign up rates between Q2 and Q3 but explainable and nothing to be concerned by
They have extended Shopify Payments to Belgium and Shopify Capital to UK and Canada in the last year
There has been no difference between Shopify North America vs International (or rather English speaking vs non English speaking) performance
More and more clients are seeking to plan in Shopify fulfilment network for the coming holiday season and this is going to be their single biggest rate limiting step I would think in terms of capacity and automation challenge
The upcoming season is expected to mark an inflection point between online vs offline and Shopify are working on all the functionality to support that as well as the key partnerships that provide Shopify with an undeniable moat (Walmart, Pinterest, Facebook, Instagram, TikTok in the last year alone and potentially YouTube on the way - https://seekingalpha.com/news/3621079-googles-youtube-testin…, together with 37,000 apps providers/solution partners), … “The majority of respondents to a recent merchants survey conducted by Shopify anticipate more online than in-store purchasing during this year’s Black Friday, Cyber Monday weekend”.
This is a straight quote and highlights to me how Shopify is hiding in plain sight even on this board and one I liked the most… “Shop Pay has experienced phenomenal growth since its launch three years ago, facilitating over $14 billion in GMV with more than 60 million buyers opted in at the end of Q3. Facilitating more Shopify GMV than Apple Pay, Google Pay and Amazon Pay combined.”
BTW I went back to look for the slide showing cohort growth. They recycled one up until 2019 earlier this year - see slide 22 in this investor presentation.
Amazon’s own blockbuster earnings release (with revenues up 37%), just goes to illustrate how strong the tail winds are in eCommerce. It is the one of the biggest trends of our lifetime and concerning the largest TAM on earth (alongside financial payments).
Thinking about this and I know I have been top slicing to manage a single holding exposure of greater than 25% in my portfolio but if this share price weakness continues, I’m going to be very tempted to add. (I haven’t been adding since $125 I don’t believe).