Commentary

The Results Are In: People Love To Shopify During A Pandemic

Shopify, the Ottawa-Ontario based company that makes it easy for mom-and-pop retailers, ecommerce entrepreneurs and established brands alike to create shops and market their wares online, saw its revenues nearly double over the same period last year. 

“Shopify, which was founded in 2004, is an e-commerce platform that sells businesses a variety of tools to make it easier to build, run and market their online stores. The company has benefited from consumers shopping online because of government-mandated lockdown measures that have forced businesses to close in-person retail,” Matt Grossman and Kimberly Chin write  for The Wall Street Journal.

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“Shopify said the number of new stores created on its platform increased 71% in the second quarter compared with the first, driven by e-commerce shifts fueled by the pandemic and a promotional offering for a 90-day free-trial period. Shopify said it had a slightly lower rate of free-trial accounts converting to paid subscriptions during the 90-day free trial,” they add.

“Revenue surged in the second quarter, boosted by brick-and-mortar retailers using the online shopping platform to continue business amid coronavirus pandemic lockdowns. The company said Wednesday that revenue in the quarter ended June 30 rose 97% from a year earlier to $714.3 million. Wall Street analysts had expected revenue of nearly $514 million,” Carmen Reinicke writes  for Markets Insider.

Indeed, “revenues raked in through its websites surpassed those of rival eBay for the first time,” Luke Tugby writes  for Retail Week.

“Prior to the Shopify earnings report, the provider of online store platforms late Tuesday filed a mixed registration offering to raise $7.5 billion,” Reinhardt Krause reports  for Investor’s Business Daily.

“Shopify saw a particular increase in food, beverages and tobacco, as well as a recovery in its traditional mainstays of apparel and cosmetics. New retailers joining Shopify in the quarter included cowboy hat maker Stetson and brewer Molson Coors,” Tim Bradshaw writes  for Financial Times.

“‘Strong transactional revenue, far ahead of even the highest expectations, point to COVID-19 tailwinds that are stronger at [Shopify] than most anticipated,’ analysts at Citigroup said in a research note on Wednesday,” he continues.

“The company had already turned heads on Wall Street prior to its blockbuster earnings report. Goldman Sachs, which up until Tuesday had rated the Ottawa-based stock at ‘neutral,’ penned a mea culpa earlier this week and upgraded the equity to ‘buy.’ The bank reiterated its recently increased price target of $1,127, which represents more than 14% upside from Tuesday’s close,” Thomas Franck writes  for CNBC.

“‘With a unique customer acquisition funnel that has not only found unmatched success in [small and mid-sized business] but increasingly the enterprise segment as well, we believe SHOP should be able to sustain hyper-growth for longer than the market expects,’ Goldman’s Christopher Merwin wrote on Tuesday,” Franck adds.

“Following global lockdown orders to curtail the spread of COVID-19, e-commerce penetration in the U.S. grew from 16% of retail spending in the first quarter to 40% in May, Merwin said in the Tuesday upgrade note,” Priya Nigam writes  for Benzinga

“The internet team at Goldman Sachs has raised its 2020 growth estimates for U.S. e-commerce revenue from 15% to 29%, which is likely to continue boosting Shopify’s growth,” Nigam adds.

The “once ‘hated’ stock has been a savior for millions of mom-and-pop shops across America. It handles all the ‘plumbing' of online selling, like payments, shipping, and marketing, and it’s poised to rocket higher in the years ahead,” Stephen McBride, a professional investor and the chief analyst at RiskHedge, wrote  for Forbes last month.

So what’s to hate?

“Think about what Shopify was trying to achieve -- run an online marketplace where smaller businesses could sell their goods. That’s stepping into Amazon’s (AMZN) territory. And how could a tiny startup compete with an 800lb. gorilla like Amazon?” McBride continued.

“Most investors thought Shopify would be out of business in a year or two. But here’s the thing: folks who bought Shopify in 2016, when it was out-of-favor, are sitting on 3,500% gains today. It was the perfect ‘hated’ stock play.”

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