Thoughts on Shopify's Q4

I was admittedly late to owning this company, but I have come to really like it. I thought the earnings report was fairly stellar. The only knocks against the company as an investment, in my mind, is its steep valuation and high SBC.

The Merchandise Solutions revenue is lower-margin, but it’s not “low margin,” if that makes sense. And its obviously rapidly growing, +63% YOY. That’s astounding. The services included in these segments – such as Shopify Capital, Shopify Shipping, and Fraud Protection – not only serve to boost the top-line, but also widen Shopify’s moat from competition. The more services they can provide, the deeper its ecosystem will go and the stickier its platform will become. Translation: The more money merchants will be gladly handing over to Shopify for years to come.

Rick Munarriz highlights what is now Shopify’s largest top-line contributor:

Shopify is winning, largely because its merchants are winning. Gross merchandise volume soared 54% to hit a record $14 billion for the period. Shopify’s subscription revenue rose at a slower 42% pace, but that only means that the subscription fees being paid by the average merchant are becoming a smaller part of their sales.

Don’t cry for Shopify. Merchant solutions revenue has become the thickest slice of its top-line pie, and it soared 63% during the fourth quarter as Shopify’s cut of the transactions and strong inroads into merchant financing, shipping, and other fulfillment offerings are paying off in a big way.

Read the whole thing at…

I think of Shopify as the Square of the internet. Or maybe Square is the Shopify of brick-and-mortar? Both companies, though, release innovative products that solve pain points for small merchants at a fairly brisk pace. It’s hard to keep up with them at times.

In the conference call, COO Harley Finkelstein talked more about some of the new features Shopify was offerings it businesses:

We are likewise expanding our product market fit for a greater number of businesses by continuing to develop more advanced enterprise-level features and functionality, such as Launchpad, Scripts and Flow, all tools to help merchants upscale, customize and work more efficiently. Launchpad is a specialized tool that lets plus merchants plan and automate flash sales, product launches and sales campaigns. Scripts enables merchants to optimize their e-commerce checkout in several ways, such as automating discounts and promotions. And Flow is our integration tool that allows merchants to offload repetitive tasks such as reordering inventory, letting merchants focus on growing bigger, faster.

Read the entire conference call at…

A few business highlights:

Shopify Payments facilitated $5.8B, good for 41% of GMV. Payments launched in Spain, making it available in 11 countries.
Shopify Capital issued $71.8M in credit, +80% YOY.
Mobile accounted for 78% of traffic, 66% of orders.
Shopify Shipping used by 40% of eligible merchants.
Nearly 2,500 apps available in app store.

The second major takeaway I had from the conference call, was Shopify’s push into international territories.

Again, from Finkelstein in the conference call:

On the international front, a key step we took this year was translating the Shopify platform, which is now available in seven languages. This single undertaking in 2018, boosted merchant access to and merchant success on Shopify outside our core geographies of North America, the U.K. and Australia. Our mix of international merchant has expanded to its highest level ever in the fourth quarter, and our lead-to-conversion rate improved in markets where we translated the user interface. As such, merchants from outside our core geos accounted for 24% of our merchant base in 2018, up from 21% in 2017. And the contribution from international merchants to total GMV on our platform continued to increase, with the GMV more than doubling over 2017 in three out of our four priority countries.

Management declined to reveal what these four int’l countries were, but stated that they were identified because “we felt that we had the closest product market fit in those countries” but did not have a properly translated or localized platform for those countries. They were definitely encouraged that in 3 out of 4 of these countries GMV doubled, mentioning it a few times during the call.

Here’s a look at the company’s numbers:

Revenue (millions)		Q1		Q2		Q3		Q4	
2017				127.4		151.7		171.5		222.8
2018				214.3		245.0		270.1		343.9

EPS (adjusted)			Q1		Q2		Q3		Q4
2017				(0.04)		(0.01)		0.05		0.15
2018				0.04		0.02		0.04		0.26

Current (2018 Q4 Earnings):

Revenue Growth (millions)
2017 Q4 TTM Revenue = 673.4
2018 Q4 TTM Revenue = 1,073.3
TTM YOY Revenue Growth = 59.4%

EPS Growth (adjusted)
2017 Q4 TTM Earnings = 0.20
2018 Q4 TTM Earnings = 0.36
TTM YOY EPS Growth = 80%

P/S (check current market cap) = ~ 17.8

Subscription Solutions Revenue (mil)    Q1		Q2		Q3		Q4	
2017					62.1		71.6		82.4		93.9
2018					100.2		110.7		120.5		133.6

Merchant Solutions Revenue (millions)	Q1		Q2		Q3		Q4	
2017					65.3		80.1		89.0		128.9
2018					114.1		134.2		149.5		210.3

MRR* (millions)				Q1		Q2		Q3		Q4	
2017					20.7		23.7		26.8		29.9
2018					32.5		35.3		37.9		40.9

* Monthly Recurring Revenue is calculated by multiplying the number of merchants by 
the average monthly subscription plan fee in effect on the last day of that period 

Shopify Plus (millions)			Q1		Q2		Q3		Q4	
2017					3.5		4.3		5.4		6.3
2018					7.0		8.1		9.2		10.4

GMV* (billions)				Q1		Q2		Q3		Q4	
2017					4.9		5.8		6.4		9.1
2018					8.0		9.1		10.0		14.0

* Gross Merchandise Volume represents the total dollar value of orders processed on the 
Shopify platform in the period

GPV* (billions)				Q1		Q2		Q3		Q4	
2017					1.8		2.2		2.4		3.5
2018					3.0		3.6		4.1		5.8

* Gross Payments Volume is the amount of GMV processed through Shopify Payments

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