Great quarter!
Myths and a reminder of the company scope/vision
I have heard misconceptions about their target market. I’ve heard they are only for small business and I’ve heard they are only for large business. I have heard they are only for eCommerce. None of this is accurate.
The truth is…
Shopify says they are and “entrepreneurship company for merchants of all sizes” and their vision is a cloud-based “Single Integrated Back Office”. Even a small business with one brick-and-mortar location can use Shopify for everything from PoS and accounting flows to a website for an online presence with social media channels to shipping and inventory management.
They break down the business in to these categories and products:
- Entrepreneurs: Basic
- SMBs: Shopify & Advanced
- Larger Brands: Shopify Plus
The Report
Their decks are always really nice. I highly recommend a skim: https://s23.q4cdn.com/550512644/files/doc_financials/2020/q4…
Scroll down to “Annual Cohorts Provide Strong Foundation for Growth” and check out how each cohort continues to grow dramatically, even those who came on to the platform before 2018!
I’m going to try for some more hidden and interesting bullets here rather than copy the top set.
Revenue growth: 94% YoY and 27.4% sequentially (QoQ) - This is a seasonally high quarter and inline with past years. See my breakdown below. However, it is still impressive that this happened at today’s scale.) This is still just a sliver of their TAM.
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Subscription Solutions revenue was $279.4 million, up 53% - This includes [1] Apps, themes, domains, shopify plus subscription component, [2] monthly recurring revenue for shopify plus and [3] core products. All of these grew roughly proportionally with the first group being outpaced but the others, which is fine. This stuff is mostly the “land” in “land and expand”. The expand part comes mostly from merchants using more services as they take advantage of the platform and support offerings which is the next part
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Merchant Solutions revenue growth increased 117% - I don’t think they break out the details here but this is everything else that is not “Subscription Solutions” as far as I can tell. That means it is things like transactions from ShopPay and external payment providers, loan income, shipping, consulting, fulfilment perhaps, etc. I take this to be the “expand” in land and expand….simply having customers grow and sell more things. The fact that this is the largest segment growing is amazing and proves the company is delivering on their core beliefs and mission to grow along with their customers.
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Operating leverage continues to improve significantly. S&M shrank from 28% to 18% of revenue and R&D shrank from 16% to 12% of revenue. This tells me they are scaling without scaling costs, which is what we love to see from largely SaaS companies!
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I find this referral stat neat as a sort-of-retention-rate-measure: 42,200 partners referred a merchant to Shopify over the past 12 months, up 72% compared with 24,500 over the 12 months ended December 31, 2019.
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Introduced POS Pro, a new subscription offering with incremental valuable features such as buy-online-pickup-in store, staff roles and permissions, exchanges, and smart inventory management.
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Expanded the availability of Shopify Payments to 17 countries. Added Austria and Belgium
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Expanded Shopify Capital beyond the U.S. to support merchants in the United Kingdom and Canada.
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Launched Shopify Shipping in Australia
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Their aggregation app “Shop” had more than 100 million registered users, including buyers that have opted in to Shop Pay as well as users of the app, and at the start of 2021 had more than 19 million Monthly Active Users. Remember they do not monetize this. It is value-added, or a differentiator.
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If they report this again it will be an interesting comparison point I think: the number of consumers buying from Shopify merchants grew 52% from 2019 to nearly 457 million, an acceleration from the 38% year-over-year growth in consumers buying from Shopify merchants in 2019
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Announced three partnerships to help bring thousands of small businesses online and help them adapt to a digital economy. Partnerships include the Government of Canada through the ‘Go Digital Canada’ program, the New York State Government through ‘Empire State Digital’, and the Victoria State Government in Australia through the ‘Small Business Adaptation Program’.
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An interesting bit of news: Subsequent to 2020 year end, in February 2021, Shopify announced the expansion of our accelerated checkout, Shop Pay, to Facebook and Instagram. With this expansion, Shopify Payments will process all transactions by Shopify merchants on Facebook and Instagram upon full implementation of the integration later this year. This is the first time that Shop Pay is being offered outside of Shopify […] Instagram in the US, and will be rolling out to […] Facebook in the US in the coming weeks.
The numbers are great but…
…it looks like there is seasonality to the numbers and while growing at 27% QoQ looks amazing it has happened in this quarter in the past two years as well. There is that big COVID-jump last June as the world rushed to create an online presence or add features to their existing one to aid in business continuity during the pandemic. The fact they reported the first pandemic quarter that late means this next report will still show a YoY comp from before the pandemic. I honestly have no idea what to expect and I haven’t found any forward-looking numbers in the report. That said, just based on the the revenue growth numbers, this seems to be one company that was serious when they said the pandemic brough future business to today. The QoQ numbers seem largely consistent in spite of the jump up. Even at a scale 4x bigger than 2 years ago the quarter growth is just as high and it only seems to fuel the fire.
So…any thoughts on this guess? I simply changed the revenue to get a QoQ number inline with past seasonality. Note the YoY still looks great as it smooths the seasonality out, but that has always been true as well. Consider what it would be like if they actually grow this coming quarter.
*Guess* **Dec-20** Sep-20 Jun-20 Mar-20 Dec-19 Sep-19 Jun-19 Mar-19 Dec-18 Sep-18
Revenue *920* **977.7** 767.4 714.3 470 505.2 390.6 362 320.5 343.9 270.1
YoY *95.7%* **93.5%** 96.5% 97.3% 46.6% 46.9% 44.6% 43.8% 49.6% 54.4% 57.5%
QoQ *-5.9%* **27.4%** 7.4% 52.0% -7.0% 29.3% 7.9% 12.9% -6.8% 27.3% 7.3%
How do you think through this fact that the next quarter is probably not going to look great even if it is?