Canadian e-commerce giant Shopify Inc. announced Tuesday that it now has more than one million merchants using its online platform, a milestone that had chief executive Tobi Lutke reminiscing about the company’s early days.
“This is kind of blowing my mind right now,” Lutke told the company’s third quarter conference call, as he recalled launching Shopify’s first store about 15 years ago.
“I had an investor who ended up not investing because they told me that the worldwide market for online stores was about 40,000 stores,” Lutke said. “So it’s just amazing to zoom out and see what happened, how many people are building their businesses, from every downtown area in every city, to the most remote islands in the middle of the Atlantic.”
Normally Shopify, which now has a market capitalization of $46 billion and customers in 175 countries, only reports the number of merchants on the platform at the end of each fiscal year, but made an exception for the milestone.
The mark suggests customer growth is accelerating: In February of this year, Shopify reported having 800,000 merchants, and a year before that, 600,000 merchants.
Lutke said the software as a service business model has been powerful for Shopify, building a subscriber base and continually expanding the suite of services in order to keep those merchants happy.
Overall, Shopify reported third-quarter revenue of US$390.9 million, a 45 per cent year-over-year increase. While the rate of growth remains strong, it represents a slowdown from the 58 per cent revenue growth posted this time last year, and 72 per cent in Q3 two years ago.
The company also reported a net operating lost of $72.8 million for the quarter, which appeared to surprise the market, and caused the stock to dip Tuesday morning. However, the company said the loss was mostly the result of a one-time tax charge associated with moving intellectual property from one jurisdiction to another.
The earnings come at a choppy time for the technology sector, according to Ygal Arounian, analyst with Wedbush Securities, and Shopify trades at a big multiple, so there was a risk of a strong reaction from the market.
“Software as a group is down. The valuation multiples that software stocks get are traditionally significantly higher than average, and Shopify is towards the high end of that, so they have a really big valuation,” he said.
“This was a solid quarter, but in this environment, it wasn’t enough to keep the stock moving up,” Arounian said.
Suthan Sukumar, an analyst covering Shopify for Eight Capital, said he thinks the market got spooked prematurely by the earnings figure.
Did You See This CB Softwares?
37 SOFTWARE TOOLS... FOR $27!?Join Affiliate Bots Right Away
“I think if that confusion wasn’t there initially, the stock actually would’ve been up today, because everything I heard on the call just reinforced that every significant growth driver is seeing significant momentum,” Sukumar said.
Aside from the million merchant milestone, Tuesday’s earnings call was dominated by questions about two of Shopify’s add-on services — fulfillment and capital.
The company revealed that in the past quarter, it issued US$140 million in loans to merchants, allowing them to buy inventory or invest in their business using the cash advance on future sales.
On the nascent Shopify Fulfillment Network, executives indicated that everything is still going according to plan, with Shopify aiming to establish a system of warehouses and shipping services in the United States to allow merchants to deliver products within two days of receiving an order.
Lutke denied that Shopify is in direct competition with Amazon.com Inc., and said that Shopify has no plans to match Amazon’s push for one-day shipping, because it’s simply too expensive.
Sukumar said it likely won’t be until next summer before investors can really meaningfully start to assess the execution on the Shopify Fulfillment Network, once its up and running.
But the potential upside is that by offering shipping services for merchants, it’ll create a lucrative new line of business, while also enticing more merchants to move their e-commerce store to Shopify.
“It’s a very intensive rollout,” he said. “You’re not just rolling out a simple feature on the platform or simple software functionality. This is basically a whole new line of business that they’re getting into.”