Retail

Shopify’s 2Q Earnings Illustrate Growing Digital Shift For Merchants, Shoppers

Shopify’s 2Q Earnings Illustrate Digital Shift

Shopify reported second-quarter earnings on Wednesday (July 29) that demonstrated the growing digital shift for consumers, with the company recording a dramatic increase in both the number of stores on the platform and consumer spending at those stores.

By the numbers, total revenue came in at $714.3 million, a 97 percent increase from 2019. Gross merchandise volume (GMV) also grew 119 percent, accelerating in April and May and decelerating in June and July. However, the company would not detail the percentage amount of that deceleration and pulled its revenue guidance for the rest of the year.

But Shopify did say that stores created on the platform grew 71 percent, driven by the overall digital shift as well as the expansion of the free trial period on its standard plans from 14 days to 90 days. The trial offer ended on May 3, but Shopify expects new users who created stores in April and May to convert into paid merchants through Aug. 31. The company added that while the free trial accounted for its new store creation, it didn’t account for the overall revenue growth.

“Over the past few months, we’ve seen the COVID-19 pandemic firsthand, [and] it has catalyzed eCommerce – introducing major changes in buyer behavior and pulling forward what retail would look like in 2030 to 2020,” Chief Operating Officer Harley Finkelstein said on the company’s earnings call. “Many merchants were caught off guard, and we knew that Shopify needed to act fast to help them survive. So from late March through the second quarter, we dialed up our urgency to enable independent businesses to adapt and compete in this new reality. This urgency helped more merchants not just survive, but thrive in a period of major upheaval.”

And thrive they did. Finkelstein pointed out that 2020’s second quarter was bigger for the company than 2019’s fourth quarter, which included the holiday shopping season.

Shopify also revealed that the company recently held its first virtual user event, Shopify Reunite, which was attended by more than 50,000 users. The company used the event to announce several new payment and finance options for stores on the platform.

That includes a new suite of products called Shopify Balance, which gives merchants access to financial vehicles to start and operate their businesses. Shopify Balance – which includes the Shopify Balance Account, Shopify Balance Card and correlating rewards programs – will be available later this year in America.

The suite of products also includes Shop Pay Installments, a buy now, pay later (BNPL) product that will let merchants offer their customers more flexibility at checkout. Management said that should help increase cart size and conversion.

Shopify also announced on Wednesday’s earnings call that the company will continue to expand its international growth initiative and retail POS integration. Part of that will involve changes in getting international merchants to use the company’s mobile app, along with enhancements to cross-border selling capabilities.

“We believe the COVID pandemic has permanently accelerated the growth of online commerce, changing the retail landscape forever,” Chief Financial Officer Amy Shapero said on the call.  “At Shopify, our task is to help our merchants adapt and succeed in the world that emerges by investing in and building a global commerce operating system that evolves with their journey as the macro environment, technology and consumer behaviors change. We will continue to help entrepreneurs power through these difficult times and position themselves for longer-term success.”

The company also made a surprising announcement regarding office space. Shapero said that all Shopify employees will work from home on a permanent basis and that its local headquarters in undisclosed secondary cities will shut down.

“This also represents an opportunity for Shopify to open up and further diversify our temp pool unconstrained by physical location,” she said. “While our offices were a special part of the Shopify experience, our culture is not defined by it. It is defined by our employees, the values intrinsic to Shopify and our alignment with our mission to make commerce better for everyone.”

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