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Marina Okhromenko/Globe and Mail

When Forbes magazine declared Kylie Jenner the world’s youngest ever “self-made” billionaire, it perhaps undervalued a couple of key contributors to the 21-year-old’s wealth. The first is the Jenner-Kardashian family into which Kylie was born, which bestowed the kind of fame that can be leveraged into a wildly successful cosmetics business. The second is the made-in-Canada e-commerce platform that provided the venue for her to establish it.

In a little over three years since Ottawa-based Shopify helped launch the Kylie Cosmetics online store, a $1-billion business has emerged out of thin air, selling “lip kits” with a full-time staff of just seven and with essentially zero spending on traditional marketing. Through Shopify, other celebrities, including Drake and Justin Bieber, are also selling merchandise directly to their fans. “These are business models that were impossible to create a decade ago, when they had to go through a third-party retailer,” says Harley Finkelstein, Shopify's chief operating officer. “The direct-toconsumer movement is exploding, and Shopify is at the epicentre of it.”

Shopify has recently hit some milestones of its own. In January, it became the largest publicly listed Canadian tech name, with a market capitalization in excess of $30 billion. In February, it posted its first annual revenue figure in excess of $1 billion. And in March, its stock was anointed to the ranks of Canada's corporate elite as one of the newest members of the S&P/TSX 60 Index. Profitability, on the other hand, is nowhere on the horizon, but that's hardly what investors want from such a high-growth stock, to which many of the traditional valuation metrics don't really apply.

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By bringing e-commerce to the masses, Shopify has become the platform of choice for would-be Internet merchants. And yet, it’s still a bit player by global standards, claiming a mere sliver of the total e-commerce market. Expanding the basic offering internationally will be key to the next stage of growth, as will stalking bigger game—larger merchants and established brands with more sophisticated requirements that are looking to cut out the middleman and connect directly with their customers.

Simplicity has always been core to Shopify’s approach. New merchants can choose a theme and domain name for their site, upload images of their inventory, activate payment services, add in third-party applications and be live in a matter of hours, for as little as $9 (U.S.) per month. By the end of last year, Shopify had more than 820,000 merchants. Many of those nascent businesses will fail. But for the minority that survives and grows, their needs will evolve over time. “The aspirational merchant is the top of the funnel,” says Ross MacMillan, an analyst at RBC Dominion Securities. “You need to offer a path to that merchant that turns it into a global brand.”

In 2014, the company introduced Shopify Plus for those managing larger online stores. Priced at a base of $2,000 (U.S.) per month, the enterprise product features multiple staff accounts, dedicated support and the ability to handle thousands of transactions per minute. What started as a way for Shopify's homegrown success stories to upgrade, however, has since drawn in several multinational brands and large consumer packaged goods companies delving into e-commerce. Unilever, for example, uses Shopify Plus to sell Maille mustard direct to consumers. Mondelez International launched a store for customized Oreo packaging to celebrate the 100th birthday of the cookie.

For substantial, established brands, the direct-to-consumer channel has some distinct benefits that traditional retailing cannot offer. Through an e-commerce platform, consumer companies can sell premium items at a higher price point, offer an individually tailored product and collect data on their customers. And Shopify may be better suited to hosting that kind of experience than an online marketplace like Amazon.com, MacMillan says. “In some ways, they’re the anti-Amazon.” While Amazon’s priority is on the consumer, Shopify focuses on merchants trying to strengthen their brands. “They’re playing to the idea that consumers will care about brands and will buy from a particular merchant, as opposed to just purchasing white-label products,” MacMillan says.

By the end of 2018, Shopify Plus accounted for 25% of the company’s total monthly recurring revenue, contributing an increasing share to a growing top line. Last year’s sales in total rose by 59% over the prior year. And at least for the time being, Shopify’s emphasis is very much on growth over earnings. There are too many expansion opportunities to worry about being profitable right now, Finkelstein says. “We’re trying to leave as little oxygen in the atmosphere for anyone else and trying to capture as much growth for ourselves as possible.” All of that makes it tricky to put a fair value on Shopify’s fast-moving stock. Richly priced at about 12 times next year’s sales estimate, investors are counting on the company sustaining a considerable rate of growth. A potential slowdown has been one of the concerns raised by short sellers over the past couple of years, but their attacks on Shopify have proven to be mere blips on an otherwise upward trajectory.

There is certainly plenty of market potential. The total value of goods sold on Shopify’s platform was $41 billion (U.S.) last year. Meanwhile, e-commerce sales globally reached $2.3 trillion (U.S.) in 2017, according to Statista. And that number only accounted for about 10% of retail sales worldwide, which are still dominated by brickand-mortar retail. “They’ve scaled up to $1 billion [in revenue],” says Ron Shuttleworth, a partner at Toronto-based Oak Hill Financial and a veteran of the Canadian technology sector. “The question now is, how do you get to $10 billion?” International expansion is one part of the answer, Shuttleworth says.

Last year, U.S. merchants accounted for 70% of the business done through Shopify. But pushing into other countries requires navigating the intricacies of each individual market, from payment systems to shipping and returns. “E-commerce is very much a local market,” MacMillan says. Last year, Shopify Payments—the company’s integrated credit card payment processor—was introduced in a number of countries, including Germany, whose consumers generally prefer to pay directly through debit or via invoice rather than on credit. So Shopify partnered with Swedish bank Klarna to offer German shoppers flexible payment methods. Navigating such local nuances requires a methodical and thoughtful expansion, Finkelstein says.

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That kind of rigour and restraint will be needed for taking Shopify into the next phase in its evolution, Shuttleworth says. While the company is currently the darling of the Canadian technology sector, the ghosts of tech champions past still loom large. “Canadian tech has a habit of flaming out at a certain scale,” says Shuttleworth, invoking the collapse of Nortel Networks and BlackBerry’s handset business. “I don’t think we’ll see that with Shopify. This is a disciplined management team, and Shopify has the flexibility to zig when they need to zig, and zag when they need to zag.”

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