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  • Reinhardt Coetzee

Shopify

Shopify’s growth run and how the Coronavirus Pandemic is making Shopify even stronger.




◾ Shopify has been on a tear recently up about +50% YTD, far outpacing the $SPX500 A large shift in consumer behavior has involved e-commerce, amid the ongoing pandemic, there has been a reported increase in eCommerce sales with marketing automation platform Listrak reporting a 40% jump in eCommerce sales since March 13. Shopify also reported triple-digit growth across certain stay-at-home items while Chief Technology Officer Jean-Michel Lemieux compared this recent spurt of growth to” Black Friday level traffic every day”.


◾ Still a buy?


I’ve been a long-term believer in Shopify’s growth prospects (my oldest open buy trade currently +338%) at multiple times – and different P/L percentages - I’ve been asked why I have not closed that position and taken profit. I’m a strong believer in having an owner or “lifetime investor” mentality to the companies you really believe in. Shopify has been on a growth trajectory before the current market environment and I believe they are very well positioned to continue being a dominant player long into the future, let's have a closer look.

Shopify is generally associated as an eCommerce platform for small and medium-sized businesses, though the consensus seems to be changing with the increasing presence of big brands on the platform.

In the past two years alone, Shopify Plus, the enterprise platform for big brands, has seen the launch of direct to consumer stores of popular FMCG brands like Johnson & Johnson, P&G, Unilever, iconic fashion brands like Steve Madden, Nicole Miller and Jones, LVMH and up-and-coming brands like Panama Jack, Toms, and KitchenAid among many others.

Joining the platform has a direct impact on these brands, for instance, Turtle Beach, a leading gaming headset and accessory manufacturer witnessed a 93% Y-o-Y increase in net revenue in 2018 (to $287.4 million) with its launch on Shopify Plus.


◾ R&D and new end-to-end solutions for merchants


Shopify’s business model is showing signs of increasing maturity as revenue contribution from merchant solutions segment, representing transaction and payment processing fees, increased from ~50% in 2017 to almost 60% in 2019. The increase is driven by a sharp increase in GMV (Gross Merchandise Value) from $26 billion in 2017 to $61 billion in 2019. 2019 also saw the company bag its millionth merchant.

The growth in the merchant base and consequent GMV can be attributed to increasing merchant success, driven by continual platform development via internal R&D and leveraging technologies of its strategic acquisitions.

Shopify recently released a suite of digital marketing features such as Shopify Chat, Shopify Email, a centralized marketing section on the dashboard, and more ad-buying tools through partnerships with Facebook and Microsoft, which help merchants reach a greater number of potential buyers without having to leave the platform.

These help brands engage directly with customers and build deeper, lasting relationships. The company also announced a new online store design update which makes it easier for merchants to custom design their stores, helping create their own unique brands and buyer experience. Key upgrades included the ability to showcase products in 3D, Augmented Reality, and video, as the company’s trials found that buyers interacting with 3D were “more than twice as likely to complete a purchase.” Furthermore, Shopify enables merchants to accept cryptocurrency, and in Feb 2020, Shopify agreed to join Facebook-originated Libra.


◾ Keeps getting better


Besides, the developments were not restricted to online shopping. The company launched a retail hardware collection including the Tap & Chip Reader, Dock, and Stand which delivers a smooth online and offline experience. The company also plans to incrementally invest in a more immersive and scalable point-of-sale software in the coming years which helps merchants sell more in person and grow their brick and mortar stores. Shopify has been also increasingly employing technologies of its acquisitions to create greater synergies.

In Q4 2019, Shopify bought 6 River Systems, a leading provider of collaborative warehouse fulfillment solution in a step to accelerate the growth of Shopify’s logistics solutions i.e. the newly launched Shopify Fulfillment Network. The AI-powered fulfillment technology is expected to ramp up Shopify’s existing shipping capacity of 10,000 packages per day to its target of 30,000. 6 River System is one of the many acquisitions including Kit, an AI-powered virtual marketing bot, Oberlo, an app that helps merchants connect with suppliers who directly ship products to consumers and Tiny Hearts, a developer of various games, apps, and bots among other startups.

The company also has enough liquidity ($2.4 billion as of Dec 31, 2019) to maintain the spending on development and growth – or whether a prolonged economic downturn.