Shopify to focus on fulfilment, international merchants after US$124M Q4 profit

Shopify laptop

Companies that shifted their retail efforts online during the pandemic made their first sales with Shopify software every 28 seconds, the company said as it reported its fourth-quarter revenue nearly doubled compared with a year earlier.

The Ottawa-based e-commerce firm was seeing new clients make their first sale roughly every minute before the health crisis, which fuelled a US$123.9 million profit in its latest quarter, up from US$771,000 a year earlier.

“Consumers are voting with their wallets,” Harley Finkelstein, Shopify's president, said on a Wednesday call with analysts.

His company has managed to benefit from the pandemic's temporary lockdowns that have forced entrepreneurs to seek online sales options like Shopify's in order to survive.

But if lockdowns are soon lifted, it could become harder for Shopify to rack up new merchants and ensure pandemic gains aren't erased when consumers have the ability to head back to brick-and-mortar stores.

Calling 2020 “an exceptional year of growth and revenue” due to the unprecedented explosion of e-commerce during the pandemic, chief financial officer Amy Shapero said it’s unlikely the company can repeat that success in 2021 as online shopping expands at a “more normalized” pace.

Slower growth

“As a result, we expect that we will continue to grow revenue rapidly in 2021, albeit at a lower rate than in 2020,” she said.

Shapero said Shopify plans to launch an “ambitious hiring campaign” for engineers to help beef up its R&D capabilities and also expects to add to its sales and marketing teams as it expands its product offerings and pushes into new international markets.

The company's executives revealed Wednesday that they'll try to keep shoppers and merchants hooked by pouring money into strengthening Shopify's delivery fulfilment network and targeting international brands that would benefit from e-commerce.

The fulfilment network, which has been positioned as a competitor to Amazon.com, has been in operation in the U.S. for almost two years, but has yet to expand further.

It's currently focused largely on signing customers up and on a research and development warehouse it opened in Ottawa in 2020.

“We will use 2021 to continue improving product market fit to focus first on quality and merchant delight before we scale our fulfilment capabilities,” Shapero said.

The company, she added, will focus on accelerating merchant onboarding and investing in automated technologies.

It will also encourage more international entrepreneurs to join Shopify, but Finkelstein wouldn't say what countries will be the target of those efforts.

“We don't necessarily want to single out any particular country, but there are places where you've seen us do quite well. We've been in Singapore and Japan for quite some time,” he said.

“We want to be the best product in market in those geographies, and so we're not just going to simply go into those markets just for the sake of it.”

Shopify’s gross merchandise volume ​– the total value of goods and services sold on e-commerce sites powered by its platform ​– nearly doubled in the fourth quarter to $41.1 billion, up $20.5 billion from a year earlier, as the number of people using its software to launch online stores steadily rose during the pandemic.

While Finkelstein acknowledged that Shopify will be hard-pressed to keep adding new merchants at the same rate it did in 2020, he said the firm still sees a bright future for individual e-commerce entrepreneurs.

Revenues soar

“I do not think this trend is going away,” Finkelstein said. “Not all (merchants) will succeed, and we know that, but that’s exactly the point. We want everyone that has that ambition to try that.”

His remarks came as Shopify, which keeps its books in U.S. dollars, said its net profit in its latest quarter amounted to 99 cents per diluted share, up from a penny per diluted share a year earlier.

Revenue for that fourth quarter, which ended Dec. 3, totalled US$977.7 million, up from US$505.2 million in the last quarter of 2019.

The increase came as subscription solutions revenue climbed to US$279.4 million compared with US$183.2 million a year earlier as more merchants joined the platform.

Merchant solutions revenue rose to US$698.3 million compared with US$322 million a year earlier, boosted by the growth of gross merchandise volume.

On an adjusted basis, Shopify said it earned US$198.8 million or US$1.58 per diluted share in its most recent quarter, up from an adjusted profit of US$50.0 million or 43 cents per diluted share in the fourth quarter of 2019.

Analysts on average had expected an adjusted profit of US$1.29 per share and US$914.6 million in revenue, according to financial data firm Refinitiv.

New merchants using Shopify's software during the quarter include Yamaha, Hallmark and Nestle's Purina brand, said Finkelstein.

Shopify shares ended the day down almost three per cent to just over $1,804 on the S&P/TSX composite index.

​– With additional reporting from OBJ staff