Shopify's Stunning Second-Quarter Numbers: A Closer Look

The richly-valued e-commerce software and services provider saw activity on its platform soar in Q2.
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Though one can take issue with Shopify’s  (SHOP) - Get Report $120 billion-plus valuation, it’s hard to find too much fault in the numbers the company shared in its Q2 report and call.

The e-commerce software/services provider is up over 7% in Wednesday trading -- and now up over 165% on the year -- after blowing away Q2 estimates. GAAP EPS of $0.29 compared with a consensus of negative $0.62, while revenue of $714.3 million both trounced a consensus of $511 million and spelled 97% annual growth, a major acceleration from Q1’s 47% growth.

There were plenty of other impressive figures disclosed. Among them:

  • Gross merchandise volume (GMV) for transactions on Shopify’s platform rose 119% annually to $30.1 billion, after having grown 46% in Q1 to $17.4 billion.
  • GMV processed via the Shopify Payments platform rose 132% to $13.4 billion.
  • Shopify’s Merchant Solutions revenue -- it covers things such as payment-processing and transaction fees, as well as services such as shipping and loans -- rose 148% to $517.9 million, after having grown 57% in Q1 to $282.4 million.
  • The number of new stores created using Shopify’s platform rose 71% sequentially.
  • Fulfillment volumes for the Shopify Fulfillment Network, which launched about a year ago, rose 150% sequentially.
  • Cash advances and loans obtained via the Shopify Capital service rose 65% annually to $153 million.
  • 38% of Shopify’s Subscription Solutions revenue came from either the Shopify Plus platform, which targets larger merchants, or value-added solutions such as apps, website templates and domain names. That’s up from 33% in Q2 2019.

Shopify did report that its total Subscriptions Solutions revenue grew a relatively modest 28% to $196.4 million, after having grown 34% in Q1 to $187.6 million. Likewise, monthly recurring revenue, which is calculated by multiplying the number of merchants on Shopify’s platform at the end of a quarter by their average monthly subscription fee, saw growth decelerate to 21% from Q1’s 25%.

However, both of these slowdowns have much to do with Shopify’s temporary rollout -- as COVID-19 lockdowns took hold in March -- of a 90-day free trial offer for merchants. With the offer having ended on May 31 (Shopify has gone back to its standard 14-day free trial offer), there’s a good chance that Subscription Solutions revenue growth will be stronger in Q3.

In addition, new and expanded partnerships with Facebook  (FB) - Get Report, Alphabet/Google  (GOOG) - Get Report and Walmart  (WMT) - Get Report stand to boost Shopify’s merchant sign-ups and GMV in the coming quarters. Recently, research firm Marketplace Pulse estimated that Walmart’s alliance with Shopify has helped the number of merchants Walmart is adding to its marketplace on a monthly basis to roughly triple since January, to more than 3,000.

On the flip side, Shopify cautioned that after accelerating in April and May, annual GMV growth decelerated in June and has continued to do so in July, as many physical retail stores reopened. And when asked on the earnings call about what June and July’s growth rates have looked like, Shopify declined to share any numbers, while reiterating that it’s not providing any guidance for now due to “uncertainties related to COVID and the macro environment.”

Though it would be unrealistic to see Shopify continue delivering the kinds of torrid GMV and Merchant Solutions growth rates it posted for Q2, the magnitude of its second-half deceleration bears close watching at a time when shares trade for around 60 times trailing sales.

That aside, Shopify’s Q2 numbers do say a lot about how much the company has made the most of the opportunity presented to it over the last few months, as a tremendous amount of retail activity shifted to online channels and many merchants with shuttered bricks-and-mortar locations came to view Shopify’s platform as a critical lifeline.