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Shopify Inc. earned a US$1.26-billion net profit in a first quarter that saw the online commerce software giant vastly exceed analysts’ financial expectations, as it has done consistently during the pandemic. Its stock rose 11.4 per cent on the New York Stock Exchange.

It was the third straight profit for a company that had previously rarely reported any in-the-black quarters since its initial public offering in May, 2015.

Unlike the third and fourth quarters in 2020, when gains were driven by an accelerated drive by shoppers and merchants to transact online because of the pandemic, most of the latest net profit was due to Shopify’s paper windfall from its stake in in U.S. consumer finance startup Affirm Holdings Inc., which went public in January. Affirm provides “buy now, pay later” instalment payment offerings to e-commerce retailers including many of the 1.7 million-plus merchants who use Shopify to manage their operations.

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Even without the impact of Affirm, Ottawa-based Shopify delivered stronger-than-expected results.

Revenues in the period ended March 31 reached US$988.6-million, up 110 per cent year over year, and $135-million higher than analyst estimates. Shopify’s merchants processed US$37.3-billion of orders, known as gross merchandise volume (GMV), through the platform, up 114 per cent. Operating income reached US$118.9-million compared with an operating loss of US$73.2-million a year earlier, while earnings per share reached US$9.94 compared with a loss of 27 US cents last year. Shopify has US$7.9-billion in cash, cash equivalents and marketable securities, after selling equity in February for the third time in a year.

Chief financial officer Amy Shapero noted on a conference call with analysts that revenue exceeded that of the fourth quarter, which includes the holiday shopping season, “a remarkable achievement given we typically see a seasonal decline.”

While analysts lavished superlatives on Shopify’s results, they cautioned revenue won’t rise by the same rate for the rest of 2021, given the strong showing last year. Ms. Shapero reiterated her warning from two months ago that Shopify expects revenue to increase at a lower rate than in 2020 – albeit still at a rapid pace – as life starts returning to normal and some consumer spending shifts back to physical stores.

“No matter how you cut it, Q1 metrics exceeded expectations,” Canaccord Genuity analyst David Hynes said in a note. But he cautioned investors to hold off for a couple of quarters to “better assess whether it makes sense to chase Shopify at these levels.” Shopify stock now trades at 28 times forecast 2022 revenues after nearly tripling in each of 2019 and 2020.

In addition to facilitating online commerce, Shopify is growing into a formidable financial services provider to its merchants. While it derives just under one-third of its revenues from subscription fees to merchants for using its platform, the principal driver of the balance is the fees it charges merchants who use its in-house payments-processing service for customer orders. While Shopify does not break out fee revenue by category, it says the total amount of payments processed by Shopify’s customers through its platform in the quarter increased 135 per cent to US$17.3-billion from the year earlier. That accounted for about 46 per cent of the quarter’s GMV.

Shopify also provided US$309-million in merchant advances – up 90 per cent from the first quarter last year – and plans to roll out bank-like offerings to U.S. merchants this year, including no-fee accounts, debit cards, cash-back rewards incentives and cash-management tools. “We want to act as our merchants’ financial partner,” Shopify president Harley Finkelstein said on the conference call.

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Last year, Shopify became Canada’s most valuable public company and a growing thorn in the side of e-commerce goliath Amazon.com Inc. A Deloitte economic impact study commissioned by Shopify found its merchants supported 3.6 million jobs globally and generated US$307-billion-plus in economic impact worldwide last year.

The company is entering a new phase that will see it move further into Amazon’s territory. Last year, Shopify launched its first consumer app, Shop, which allows users to track packages ordered from Shopify merchants, notifies them about nearby Shopify sellers and promotes featured items. The app now has 24 million monthly users.

Shopify has expanded its reach to bring its merchants’ shops to where their customers spend their time online, including social-media sites, and even allowing merchants to transact through Shopify without leaving Facebook or Instagram. Shopify is expanding into warehousing and fulfilment across North America for its merchant customers. Ms. Shapero said Shopify also plans to step up investments in companies and technologies that can help its merchants, as it did with Affirm.

In addition, the company is in the midst of a leadership overhaul. Chief executive officer Tobi Lutke recently announced three of the company’s seven top leaders would depart in the coming months, following chief product officer Craig Miller, who left when Mr. Lutke assumed his role last year. Asked by an analyst how long he might remain CEO, Mr. Lutke replied, “I’m committed. I’m in for [the] long term.”

with files from Chris Hannay

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