While the average investor may not have heard of Shopify Inc. (SHOP 0.26%), the company is well-known among small and medium-sized businesses involved in e-commerce. Setting up and maintaining an online store can be complex and beyond the skill set of most entrepreneurs. That's where Shopify comes in.
The platform helps companies set up and manage an online store and provides solutions such as customizing a website, providing ready-to-use templates, and even processing the payments -- all of which helps the owner focus on the business.
2017 was a banner year for the fledgling company, and I think it's just the beginning.
Shopify's performance has been stellar, its growth has been great, and its outlook is bright. Image source: Shopify.
A record of stellar growth
The financial results of Shopify's third quarter were representative of what investors have come to expect from the young company, which has only been public since the second quarter of 2015. Revenue of $171.5 million grew 72% year over year, while the company's operating loss of $12.7 million shrunk to 7.4% of revenue, from 9.5% in the prior-year quarter. Shopify produced an adjusted operating profit for the first time, while exceeding its own robust forecast for the quarter.
New and improved
Shopify made several moves in 2017 to ensure it continued to attract merchants, which are the backbone of the company's e-commerce business.
The company added Shopify Pay, a feature that reduced customer checkout times by up to 40% and increased conversion rates by 18% for returning customers. Once their information is saved in Shopify Pay, shoppers can enter their email address to receive a verification code that they then type in at checkout, which will auto-complete their shipping and payment information.
Shopify also introduced the Chip & Swipe Reader, which was designed to accommodate the chip technology present on newer credit cards, while still reading the magnetic strips on older cards. The reader could also connect wirelessly to both Android and iPhones, while capable of processing 400 transactions on one battery charge.
Shopify continues to bring innovative solutions to its merchants. Image source: Shopify.
The segment of the business that holds the most promise is Shopify Plus, which caters to large, multichannel, enterprise-level businesses. The platform boasts such well-known names as Red Bull, Arby's, and Blue Diamond Growers and is growing quickly, generating $5.3 million, or 20%, of the company's monthly recurring revenue. This represents what could be the company's largest potential opportunity going forward.
In a move that will likely expand its base, Shopify Plus also introduced a channel directed specifically at wholesale businesses. The platform will match buyers and sellers, offer a variety of pricing options, and other features designed for those that deal in bulk sales.
Success attracts attention
The year wasn't all wine and roses for Shopify. In October, noted short-seller Citron Research called the company a "get-rich-quick scheme" and claimed that the vast majority of Shopify's merchants were recruited with the promise of an easy way to make money. These allegations caused the stock to fall 21% in the ensuing week, the largest such drop in Shopify's history.
Shopify's founder and CEO Tobias Lutke addressed the issue during the conference call to discuss the company's third-quarter 2017 financial results. Lutke said the company was "targeted by a short-selling troll who made all sorts of preposterous claims." He went on to say that most of the company's revenue comes from merchants that are succeeding on Shopify's platform.
A year to remember
Shopify has exceeded 70% year-over-year revenue growth in each of its 10 quarters as a public company. Shopify's stock price followed its remarkable financial results upwards, gaining 135% in 2017 alone, and a massive 340% since its debut. The company now supports more than 500,000 merchants in 175 countries.
While the company has yet to release its full-year results, there are reasons to believe that its robust growth continued. Shopify reported that between Black Friday and Cyber Monday its merchants sold more than $1 billion in gross merchandise volume, and at the peak generated more than $1 million in sales in just one minute. For comparison, Shopify merchants generated $6.4 billion for all of last quarter.
In spite of some challenges, the company continues to execute on its mission to "make e-commerce better for everyone" and has enriched investors in the process.
