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Shopify: Results Reveal Very Large Declines for SMB e-Commerce Sellers

Thomas Paulson
Oct 28, 2022
Shopify: Results Reveal Very Large Declines for SMB e-Commerce Sellers

  • Shopify’s 3Q22 results and messaging further built upon its expansion overseas and its shift to a commerce and payments service. The company emphasized that Shopify POS is now available to 14 countries as they take on Stripe, Square, and Clover; Shopify Payments is now an option in 22 countries as they take on PayPal, Square, and Apple; Shopify Capital (which supports sellers’ inventory and accounts receivable and is now $4.3B in size) has expanded into four markets, taking on traditional banks and funding source partners. Merchants outside of the U.S. and Canada, comprised 45% of Shopify’s merchants (Q3); an impressive statistic that Amazon will take note of.
  • Shopify opened its first fulfillment center (combined with Deliver) in Atlanta. Two-thirds of Shopify Fulfillment Network (SFN) units were delivered within two days. As the business penetrates its seller-customers, that will be a key KPI to monitor; management’s goal is for SFN to become “the de facto fulfillment solution for independent merchants in household and personal care goods and apparel.” (Apparel is a particular focus, especially higher end brands and they are directly taking on Amazon Fashion.)
  • Shopify gross merchandise volume (GMV) increased +11%, which is similar to 2Q22. Of note, however, is that Shopify’s GMV figure is both e-commerce and brick & mortar commerce. Moreover, GMV per active merchant fell -18%. This would imply that Shopify's e-commerce-only merchants experienced roughly a 25%-plus decline in their businesses, on average. Because these merchants are not acquiring new customers (who are now out-on-the-town), they are spending less on customer acquisition. That broader absence of new customer wins (beyond just Shopify merchants) explains the large declines and/or deceleration in revenue for Snap, Facebook, and Google.
  • Shopify’s operating loss increased to $345M. Trailing-nine-month free cash flow is now negative $1B. Many analysts don't expect Shopify to reach sustained cash generation until 2024.

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Thomas Paulson

Director of Research and Business Development, Placer.ai

Thomas Paulson spent 20 years as a Wall Street analyst and a member of asset management teams at AllianceBernstein and Cornerstone Capital, representing top-50 ownership positions including Target, Home Depot, Nike, Amazon, Google, and many more.

He brings consumer related expertise and knowledge of enterprises in retail, CPG, financial services, telecom, and entertainment.

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