Shopify: Revenues Growing, Margins Declining

Investment Analysis Clubs Saul’s Investing Discussions
1

Interesting article from Foolish contributor Brian Withers:

Shopify (NYSE:SHOP) may be one of the fastest-growing companies you have never heard of. The company has developed an e-commerce platform that helps small businesses and entrepreneurs to get online, making it easy to set up a website, build a product catalog, track inventory, collect payments, and more. Shopify has been so successful with its platform that over 325,000 merchants depend on it every day. Even Amazon.com has ceded this business to Shopify.

Shopify’s revenue growth has been explosive. The company grew 112%, 109%, and 95%, respectively, for the last three full-year periods. Shopify breaks out its revenue into two segments for reporting purposes. The first, subscription solutions (as shown in green in the chart below), represents the recurring monthly fees that merchants pay to be on the Shopify platform. The second, merchant solutions (in blue), are the fees collected by Shopify when one of its customers makes a sale. Merchant solutions has been a significant contributor to growth accounting for just 19% of revenue in 2012 to 45% of the overall revenue in 2015.

The merchant solutions business allows Shopify’s customers to accept payments on its platform and has driven significant additional revenue, but it comes at a cost. The margins are much lower than the subscription business. As the merchant solutions revenue grows to be a larger portion of overall revenue, gross margins will continue to decline. But, this is good for Shopify.

Read the whole thing at http://www.fool.com/investing/2016/12/01/one-number-shopify-…

Matt
No position
MasterCard (MA), Nestle (NSRGY), PayPal (PYPL), and Verizon (VZ) Ticker Guide
See all my holdings at http://my.fool.com/profile/CMFCochrane/info.aspx

11 Likes
2

I love what the author quoted from the CC:

Shopify is exactly this: the only platform you need to build your empire. Shopify is the first thing our merchants log into in the morning and the last thing they log out of in the evening. It’s at the heart of their business—a responsibility that we take very seriously.

This is a prime example of how we approach value and something that potential investors must understand: we do not chase revenue as the primary driver of our business. Shopify has been about empowering merchants since it was founded, and we have always prioritized long-term value over short-term revenue opportunities.

9 Likes
3

Well, yes but slightly disingenuous. Hilarious enough to be worthy of an entry in the Compendium of Biz-twaddle.

Here is a more accurate way of putting it: while revenue is the driver of every business, we are content to defer it for now in order to maximize it later! Gosh we are looking forward to the big payoff to come! And we hope our investors are too!

‘Empowering merchants’ is just great but hey, it doesn’t butter the parsnips.

I know, let’s make Shopify a non-profit. Or what about a charity? After all, all we want to do is empower people! What a great mission.

9 Likes
4

With sales growth 112%, 109% and 95% (gosh it’s falling) I do hope they go on ‘not chasing revenue’. Good grief, what might the sales be if they did a little chasing?

3 Likes