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Shopify's Merchants Are Driving Growth

By Brian Withers and Brian Stoffel - May 16, 2021 at 7:26AM

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This e-commerce platform wins when its customers win.

Shopify (SHOP -7.59%) has been on a tear as online shopping has experienced significant tailwinds during the coronavirus pandemic. But not only are the e-commerce platform and its shareholders doing well, its merchants are seeing significant success as well. On a Fool Live episode recorded on April 28, Fool contributor Brian Stoffel discusses the most recent results and how Square's merchants are driving even more growth for the e-commerce platform.

Brian Stoffel: First stock that we're going to talk about is Shopify. For those who have been paying attention to their portfolios, Shopify reported earnings this morning, and they were fantastic. Revenue was up 110% and all of that they've got two lines of revenue. Subscription revenue, which is paying a monthly fee to use the platform, is up 71%. That's a big deal. Merchant services, which is more tied to whether or not the merchants are actually successful, was up 137%.

What's even better, is that a gross profit grew even faster. This is key, merchant services revenue up 137%, merchant services gross profit up a 177%, which means that they're starting to get leveraged from this area that normally doesn't have great margins. They'll never be great, but they're getting better.

The total amount of stuff sold on the platform is up 87%. We call that gross merchandise volume. Taking a look at where they are at, their cash is at about $7.8 billion. Their debt is just under $1 billion. They have produced $616 million in free cash flow over the past year. They do some things that I really like in their earnings release. When they say where it comes from, they put internet everywhere. When they had to give their outlook, they refuse to give a range or specifics. They like to talk about the dynamics that are at play. Instead of going through what the outlook was, I'll just tell you my translation of their outlook is that growth will be better in 2021 than any year in Shopify history with the exception of 2020, which I can get on board with, that's fine, and subscription and merchant services revenue will start to grow at more even paces. Right now merchant services is growing faster and that's because existing merchants are selling more because people are buying things online. Subscription revenue grows when either people upgrade their plans or they join the platform.

All in all, boy, I think that was a great quarter.

Brian Stoffel owns shares of Shopify. Brian Withers owns shares of Shopify. The Motley Fool owns shares of and recommends Shopify. The Motley Fool recommends the following options: long January 2023 $1,140 calls on Shopify and short January 2023 $1,160 calls on Shopify. The Motley Fool has a disclosure policy.

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