When much of the world locked down last spring, the rush of new business towards Ottawa-based Shopify was manic.
Revenues for the provider of e-commerce technology doubled year over year to US$714 million during the three months ended June 30.
Retailers were scrambling to create or enhance their online presence using Shopify’s software tools — all in an effort to reach customers self-isolating at home.
Investors were so enthused about Shopify’s position as e-commerce enabler, they quadrupled the firm’s share price from mid-March to C$1,421 as of Tuesday’s close.
Shopify along the way became by far Canada’s most valuable corporation. Its shares at Tuesday’s close on the TSX were worth C$173 billion — up more than C$110 billion since yearend 2019.
It’s been a stunning trajectory. And now, as the company prepares to publish financial results this Thursday for the third quarter ended Sept. 30, analysts have been pondering whether Shopify kept the momentum going.
The answer is an equivocal no. The consensus among financial analysts tracked by Thomson Reuters is that Shopify will report third quarter revenues of US$656 million. While that would represent a very sizeable jump of 68 per cent from the same period in 2019, it would also mark a drop of eight per cent from the second quarter.
Given Shopify’s five-year-long history of consistently outpacing the best guesses of analysts, perhaps the firm will post yet another sales record. It may even report a second straight operating profit.
But if revenues do fall short it would be in keeping with overall trends in retailing.
E-commerce sales across Canada surged from C$1.6 billion in February to C$3.9 billion in May according to Statistics Canada but have since retreated as more shops have been reopening offline. In August, Canadian retailers generated C$2.8 billion worth of e-commerce sales.
While this is Canadian data, the pattern of initial lockdown followed by economic reopening, was similar in major Shopify markets such as Europe and the U.S.
Canada’s August tally, the latest available, is nevertheless roughly 50 per cent higher than during the fall of 2019, showing the enduring strength of the historic shift to e-commerce.
Shopify, one of many firms to benefit, occupies a unique place in this universe. Unlike Amazon — the U.S. behemoth — Shopify does not offer consumers direct access to a marketplace of goods and services. Instead, it makes software tools that allow retailers to sell to their customers through a variety of sales channels ranging from Facebook to, as of Tuesday, TikTok, the video-sharing network.
Shopify generates revenues in two major ways. One is by charging a monthly subscription for a technology platform that allows retailers to quickly set up online storefronts and track sales on the various channels. The other, increasingly larger, set of revenues comes from fees charged for applications such as electronic payments, inventory management, customer relations, fulfilling orders — basically anything that makes the job of doing online commerce easier.
The second batch of revenues — 73 per cent of Shopify’s total in the second quarter compared to 58 per cent during the same period last year — is more vulnerable to a potential economic recession because the size of the fees depends on how much retailers actually sell. During the pandemic, Shopify’s potential exposure to an economic downturn has escalated sharply.
Nevertheless, trillions of dollars of government stimulus has so far kept a recession at bay. And Shopify appears well insulated against an economic downturn. The company had cash reserves of US$4 billion at the end of June and last month raised another US$1.2 billion by selling company shares.
Assuming no major gyrations in economic growth, the Thomson Reuters consensus forecast calls for Shopify to notch revenues of US$2.63 billion during the pandemic year of 2020 — up US$1.05 billion, or 66 per cent.
That’s pretty impressive by any standard. But to really grasp the strength of the shift to e-commerce consider the state of affairs at Amazon, which happens to report its financial results the same day as Shopify, albeit after the stock markets close.
The average forecast for Amazon’s third quarter revenues is an eye-popping US$92 billion compared to US$70 billion during last year’s comparable period.
For the year as a whole, analysts expect Amazon will reach nearly US$370 billion in revenues — up US$89.3 billion or 32 per cent.
Clearly both Shopify and Amazon were in the right place at the right time. Whether the same will be said of 2021 will depend heavily on the state of the world’s war against the coronavirus, and whether this year’s emergency converts to online retailing deciding this is now the way to go for good.
Copyright Postmedia Network Inc., 2020