Shopify defies the laws of COVID — continues to surge despite reopenings - The Average Joe

    Shopify defies the laws of COVID — continues to surge despite reopenings

    Victor Lei — Head of Research

    Victor Lei — Head of Research

    April 29, 2021

    Shopify

    April 29, 2021

    Shopify is defying the laws of COVID reopenings. Despite coming out of lockdowns, the e-commerce giant is showing no signs of slowing and even reported earnings that crushed all estimates — sending its stock up over 11%.

    Shopify vs Amazon

    For brands, selling on Amazon has become a necessary evil:

    • The good: wide reach — 49% of internet users begin online purchases on Amazon, according to eMarketer and not selling on Amazon could mean less revenue.
    • The bad: issues with its platform — brands are struggling to compete against cheaper counterfeit products on Amazon while also competing against Amazon, which is selling more of its own products.

    Enter Shopify, the anti-Amazon, which empowers brands to create and run their online websites — powering some of the biggest brands (i.e. Allbirds, Sephora).

    In 2020, Shopify’s sales and stock surged as online became the default way to shop — leaving investors wondering when growth would slow… But not this quarter…

    Shopify reported earnings that crushed it by all metrics

    • Sales jumped 110% to $988.6m and net income increased to $1.25b — which includes a $1.3b gain on its investment in Affirm ($AFRM)
    • Total value of transactions processed (GMV) through its platform grew 114% to $37.3b

    The bulk of Shopify’s growth came from supplementary merchant services — which include payment, marketing and logistics services. This unit is also its largest revenue source (67%) and fastest-growing unit (137%).

    What could propel growth? Shopify is planning to invest heavily in the 2nd half of 2021 and one focus could be on its fulfillment network. By working with warehouse partners, Shopify will offer services to store and ship their products. This could…

    • Accelerate growth and give them access to the $53b e-commerce logistics space.
    • Put Shopify in a more competitive stage against Amazon, which generated 20% of its 2020 sales from a similar service.

    For the ARK fans: Cathie Wood told BNN that Shopify could one day be as big as Amazon, which is currently 11x larger by market cap.

    For investors… E-commerce in a post-COVID world

    Even in places that have opened up, Shopify’s president isn’t seeing any pullback in online spending. But other companies are already anticipating online spending to slow down.

    On Wednesday, eBay ($EBAY) also reported strong earnings but gave a weaker forecast for the remainder of 2021 — sending its stock down 6%.

    Look out for more e-commerce earnings: Amazon ($AMZN) reports earnings after market close today and Etsy ($ETSY) reports next week.

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