Shares of Ottawa e-commerce platform Shopify Inc. surged nearly 8 per cent to close at $705.90 Wednesday after it revealed growth in its ranks of larger merchants and detailed the billion-dollar rollout of its partly automated warehouse-and-fulfillment network.
The company has become increasingly focused on framing itself as the entrepreneur’s alternative to giants such as Amazon.com Inc. “We will continue to arm the rebels,” chief operating officer Harley Finkelstein told analysts on a conference call Wednesday after the release of Shopify’s fourth-quarter 2019 financial results, which included a rare profit and US$505.2-million in revenue, up 47 per cent over a year earlier.
At times Wednesday morning, volatile trading saw the stock rise almost 20 per cent, sending its market cap higher than the combined value of the other nine top companies in the S&P/TSX Capped Information Technology Index, including Constellation Software Inc., OpenText Corp. and BlackBerry Ltd. As its market cap briefly passed US$62-billion when markets opened, Shopify had more than double the value of decades-old e-commerce rival eBay Inc.
Shopify launched nearly a decade-and-a-half ago as a platform to play host to small retailers’ websites, and has since expanded into a wide range of services for retailers, offering shipping, cash advances and, soon, warehouse services for clients. Last quarter marked its first profit as a public company, according to S&P Capital IQ, although a slight one – US$771,000, or one US cent a share, compared with a loss of US$1.5-million, or one US cent a share, a year earlier.
The Black Friday weekend was a significant boost in the quarter, with nearly US$3-billion in sales processed through the Shopify platform, up 61 per cent from US$1.8-billion a year earlier.
Despite the profit posted in the quarter, company executives do not expect that to last, forecasting a US$324-million to US$344-million operating loss for 2020. But the company also highlighted its ambitious growth plans, including revenue rising to between US$2.13-billion and US$2.16-billion.
This comes as the company saw significant growth to its Plus platform, which powers larger direct-to-consumer retail stores for brands such as clothing chain Mark’s and office-supply chain Staples Canada. Plus accounted for 27 per cent of Shopify’s monthly recurring revenue in the final quarter of 2019, up from a quarter of its MRR a year earlier.
Mr. Finkelstein told The Globe and Mail that Plus growth came not just from big merchants signing on, but from smaller retailers building an audience. “Small merchants are also growing really big on our platform – homegrown stories such as Gymshark Ltd. and Allbirds – and leveraging the all-new Shopify Plus platform,” he said.
The company’s compound annual growth rate of total merchants over the past five years was 49 per cent, chief financial officer Amy Shapero said.
Raymond James & Associates analyst Brian Peterson said in a note that while Wednesday’s surge in the share price was surprising, “we still think the long-term outlook for shares looks attractive,” and reiterated an “outperform” rating on the stock.
In an interview, D.J. Hynes of Canaccord Genuity said that Shopify’s growth outlook was better than expected, owing to Plus growth and its international expansion. But he warned that if investor sentiment broadly shifted away from “growth-at-any-price” stocks toward more profitable companies, “this stock would be hit harder in a sell-off.”
Analysts focused on both Plus and the new Shopify Fulfillment Network on the call Wednesday, including the company’s recent acquisition of Boston-area warehouse-robotics company 6 River Systems. One client had already begun to use the company’s new robotics capabilities, Ms. Shapero said, adding that the company was working to expand those capabilities to get goods to customers faster.
The company also revealed details behind a new warehousing and robotics research-and-development centre near its Ottawa headquarters. A “small portion” of its five-year, billion-dollar investment in fulfillment will be dedicated to the facility, Ms. Shapero said, including to test 6 River Systems technology and to learn how to connect its many merchants to the warehousing network.
Shopify announced last month that it is opening an office in Vancouver that is expected to grow to 1,000 employees, taking on Amazon in a war for tech talent there, with the latter expected to hire as many as 10,000 employees in the city. In 2018, Shopify also said it would spend half a billion dollars accommodating thousands of new employees in a Toronto development to be completed in 2022.
“Becoming the top employer in Canada continues to be a focus. We believe investments in innovative areas like our fulfillment network will continue to attract smart and ambitious people to Shopify,” Mr. Finkelstein said.
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