Shopify confirms new Ottawa R&D centre as stock soars following Q4 profit

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Shopify confirmed plans Wednesday to open an Ottawa-based R&D centre to trial new robotics and fulfilment technologies as the company reported a rare profit in its fourth-quarter earnings.

Shopify's stock skyrocketed to a record level Wednesday morning after the e-commerce company reported 47 per cent revenue growth compared with the same quarter last year.

Ottawa’s e-commerce giant saw its stock spike by more than 17 per cent to reach $771.81 in early morning trading on the TSX, but by the end of the day it had fallen to $705.90

The jump followed Shopify, which keeps its books in U.S. dollars, reporting that its revenue totalled nearly US$505.2 million for the three-month period that ended Dec. 31, up from about US$343.9 million a year earlier.

Shopify executives said on a call with analysts that the revenue lift was courtesy of holiday sales, new currency and payment features and a slew of new merchants using its software, including entertainment giant Cirque du Soleil, apparel retailer Mark's, rapper Travis Scott and footwear brand Toms.

It came as the company has been busy getting ready to go head-to-head with Amazon.com Inc. with a network of fulfilment centres Shopify is building in the U.S. to help merchants lower shipping costs and ensure quick deliveries.

Shopify chief financial officer Amy Shapero confirmed Wednesday that the company is opening a research and development centre for its fulfilment network in Ottawa, an initiative first reported by OBJ late last year. The company will fund the R&D centre’s operations with a "small portion" of the $1-billion pool of cash allocated for the network, she said.

“We opened an R&D Center in Ottawa to learn about fulfillment first-hand, including trialing new warehouse robotics and fulfillment technology. We will be fulfilling a limited number of orders in Canada as part of our learning, beginning later this summer,” a Shopify spokesperson told OBJ via email. The operation will be staffed by a “minimal number of employees,” according to statements obtained by the Canadian Press.

Shopify first let its plans slip in job postings in late 2019, which sought Ottawa-based roles such as warehouse site managers. Sources in Ottawa’s real estate sector confirmed to OBJ that Shopify had been looking around prospective industrial sites in recent months.

Shopify has not responded to requests for comment on where the company’s R&D centre is set.

"We don't just want to make plans from the periphery," said Harley Finkelstein, Shopify's chief operating officer, during Wednesday’s conference call. "We actually want to get into it and really figure out what we need to do, and so the best way for us to do that, as Shopify has always done, is get our hands dirty and get into the trenches."

To help with such research and development, Shopify acquired 6 River Systems Inc., a Massachusetts-based company that specializes in warehouse automation powered by robots and artificial intelligence.

"Even though we are happy with our initial progress, it's important to remember that we are in the early stages of a five-year plan for the Shopify Fulfillment Network. Our merchants need us to get this right and that will take time," Finkelstein said.

Aside from the centre, Shopify is planning on hiring 1,000 people in Vancouver and opening its first permanent office there. It has also announced that it will lease space at the Well complex under construction in Toronto.

Both are signs of the immense growth that Shopify – long considered Canada's tech darling – has undergone in recent years. The company has racked up more than one million merchants using its offering.

CEO Tobi Lütke said during the call that the primary factor limiting Shopify’s growth potential is its access to engineering talent. Though he said adding engineers is a challenge for the company, he also admitted the company’s high profile probably gives it better access to top talent than other tech companies competing for hires.

In 2019, the number of merchants on the Shopify platform achieving over $1 million in gross merchandise value – a term used to measure sales – grew by 44 per cent and the number of consumers buying from its merchants shot up by 37 per cent to hit nearly 300 million.

In its last quarter, the company reported a profit of US$771,000, compared with a loss of US$1.5 million. That amounts to a penny per share compared with a loss of a penny for the last three months of 2018.

Shopify also said its adjusted net income for the quarter amounted to US$50.0 million or 43 cents per share, compared with adjusted net income of US$29.4 million or 27 cents per share for the fourth quarter of 2018.

Analysts on average had expected an adjusted profit of 24 cents per share, according to financial markets data firm Refinitiv.

Shopify now expects a first-quarter revenue between US$440 million and US$446 million and full-year revenue in a range of US$2.13 billion to US$2.16 billion.