Shopify (SHOP +5.40%) grew its customer total 61% last year, and delivered impressive 73% revenue growth. High double-digit growth is expected again this year, and investors are asking how this e-commerce platform company will maintain its hypergrowth. In the most recent earnings call, management answered that question, detailing three focused investment areas for 2018. Read on for details on its investments in its international capabilities, Shopify Plus, and platform scaling.
1. International
Shopify's international exposure is impressive given that the company hasn't spent significant effort serving international locations until recently. Shopify has merchants in 175 countries, but international merchants make up only 19% of the total merchant count, leaving plenty of room for growth.
Last year, the company that helps business sell online tested the waters internationally with small, focused efforts. In the second-quarter 2017 earnings call in August 2017, CFO Russ Jones talked about "experiments" to translate the company's blog into other languages, which were successful in bringing more international merchants to the platform.
With confidence that its efforts would pay off, Shopify has started expanding key foundational features for its international merchants. Its Shopify Pay feature, which saves customer data, allowing an easy checkout process, is now available in 10 languages. The company's "theme store" -- a set of generic prebuilt e-commerce websites -- can handle multiple languages. In 2018, Shopify is focusing on Germany, France, Japan, and Singapore to start.
Shopify merchants can manage their business from their phone (or tablet). Image source: Shopify.
2. Shopify Plus
Large merchants are a big business for Shopify. The company has built a high-end, feature-rich platform, called Shopify Plus, for its largest merchants that starts at a monthly subscription cost of $2,000. The company has attracted 3,600 Shopify Plus merchants, which account for less than 1% of the merchant count, but an impressive 21% of the company's monthly recurring revenue. The company started Shopify Plus in 2014 and is building on the service now.
COO Harley Finkelstein said during the company's most recent conference call that investments in the Shopify Plus platform will be focused on "building more advanced enterprise features into the platform." Larger merchants have unique needs that Shopify believes can be met with software tools like Shopify Flow (automated workflows such as inventory reordering) and wholesale web portals.
Finkelstein said, "the nuances and complexity of what these larger merchants need, things like cross-border tax compliance, things of that nature, it's just not something that smaller merchants require."
The company's third investment area worth talking about is enhancing its platform for significantly more customers, regardless of size.
3. Scaling the platform
"Having gone from tens of thousands of new merchant adds in 2016 to hundreds of thousands in 2017, the advantages of scale are clear, which is why in 2018 we will continue to strategically invest for growth," said Jones during the February conference call.
Shopify is driving more merchants to its platform by what CEO Tobi Lutke calls "flattening the learning curve," making it easier for entrepreneurs to become e-commerce merchants. The company grew its merchant count to 609,000 by the end of 2017, making it increasingly challenging to support these merchants with the company's 3,000 employees. To maximize its employees' effectiveness, the company is turning to data analytics and machine learning to identify and fix the areas that are most in need of improvement.
Shopify has been using these methods to help improve its platform and better help merchants for some time. In the most recent earnings call, Lutke said, for instance, that the process of cash advances has been taken over by algorithms and machine learning.
Shopify has a track record of prioritizing the efforts that bring the most value, and these three investments are no different. With Shopify projecting 38% to 47% revenue growth in 2018, executing on these initiatives will be crucial to support the company's growing business.
