Canada’s most valuable company, retail software provider Shopify Inc. , continued its blistering expansion pace in the fourth quarter after benefiting from a marked shift to online shopping during the pandemic.
But management also confirmed recent analyst warnings, saying they don’t expect Shopify to repeat last year’s pace of growth in 2021. The company also said it would no longer provide earnings guidance.
That decision, analysts said, could make its stock, which has nearly tripled in value in each of the past two years and is up 26 per cent so far in 2021, more unpredictable. “It obviously adds uncertainty and creates potential volatility around the [analysts’] consensus numbers going forward,” National Bank Financial analyst Richard Tse said. But he also increased his 12-month stock price target to US$1,650 from US$1,400, saying Shopify has “considerable runway from different avenues of growth.”
Shopify said Wednesday it booked revenue of US$978-million in the quarter ended Dec. 31, up 94 per cent year-over-year and ahead of consensus analyst expectations of $913-million.
The company – which provides software used by merchants to manage their e-commerce sites, process payments and back-office operations – beat expectations across the board, as it usually does. Adjusted operating income jumped to $200-million from $28.5-million a year earlier. Shopify merchants rung up US$41.1-billion of sales through its platform, up 99 per cent from the same quarter a year ago. Net profit was US$123.9-million, or 99 U.S. cents a share, up from $771,000 a year earlier. That marked the first time it has posted back-to-back quarterly profits. Shopify spent US$552.1-million on research and development in 2020, up 54 per cent, making it one of Canada’s 10 biggest innovation spenders. Shopify plans to hire 2,000-plus engineers this year.
Like many companies, Shopify’s 2020 plans were upended by the pandemic, though few benefited as much from its economically dislocating effects. It released a slew of offerings to support existing customers and to help offline retailers easily sign up. It introduced new features to facilitate curbside pickup and local delivery, tip collection and gift card sales. Shopify also extended its 14-day free trial for new merchants to 90 days and partnered with governments to help small businesses get online. It expanded financial offerings to customers, including merchant financing.
“Entrepreneurship is in a better state and more businesses are surviving the pandemic because of the work we do,” president Harley Finkelstein told analysts on a conference call.
Shopify plans to continue working remotely after the pandemic (its earnings release carried the placeline “The Internet,” rather than its domicile in Ottawa).
The company, which partners with social-media sites and marketplaces to allow merchants to sell through various channels, has emerged as a growing threat to Amazon.com. Shopify merchants reportedly handled more sales during the U.S. Thanksgiving weekend than the Seattle giant did from third-party merchants on its marketplace. Shopify’s platform is the second largest business for e-commerce sales in the United States, behind Amazon. Shopify is also in the early stages of building a fulfilment network for customers and is investing in its consumer-focused Shop app to encourage more shopping from its merchants. Shopify ended 2020 with 1.75 million merchant clients globally, up 64 per cent on the year.
Shopify is also encroaching on the turf of other tech giants. While its customer base is dominated by small and medium-sized sellers, one-quarter of its $82.6-million monthly recurring revenue derives from larger brands. Mr. Finkelstein said. Shopify ended the year with 10,000 such customers – up by 3,000 on the year – including new signups Yamaha, Hallmark, Diageo and Purina. Many switched from legacy providers including Adobe’s Magento e-commerce platform.
Shopify is also starting to offer its speedy Shop Pay checkout offering, away from its platform, enabling merchants to process sales on Instagram and Facebook as an alternative to PayPal.
Despite those initiatives, chief financial officer Amy Shapero said she expects revenue to grow “at a lower rate” this year compared with 2020 – albeit still at a rapid pace – as vaccines roll out, people move more freely and the shift to e-commerce resumes “a more normalized pace of growth.” She declined to offer specifics, as Shopify will no longer provide financial forecasts, after pulling its guidance last year at the outset of the pandemic. Ms. Shapero said the move was consistent with Shopify’s prioritization of “long-term value” over short-term results. Instead, it will provide “information on directional indicators … and the assumptions that guide our planning,” she said.
Raymond James analyst Brian Peterson said in a note Shopify “should once again be an elite growth asset in 2021,” but cautioned investors should hold off investing for now given its stock trades at 45 times estimated revenue.
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