Canadian tech darling Shopify notched $1 billion in revenue for the first time in the e-commerce company’s history last quarter as a return to in-person shopping built on the company’s momentum from the COVID-19 pandemic.
Ottawa-born Shopify, which keeps its books in U.S. dollars, recorded total sales of $1.12 billion in the second quarter of its fiscal year, up 57 per cent year-over-year.
The e-commerce company develops a platform and other services to help its customers, dubbed merchants, manage their online and physical stores.
Shopify saw a big spike in sales during the COVID-19 pandemic, with many retailers forced to build out their online presence as public health precautions restricted brick-and-mortar outlets.
Ottawa ceramics shop Hintonburg Pottery Inc. took its first steps into online retail with Shopify in October 2019, a move creator Ginger McCoy says was “serendipitous” with the pandemic unknowingly looming a few months later.
“If we had not done that in October, we would not have been prepared when March came,” she told Global News, reflecting on the public health measures that would prevent the store from welcoming customers into its shop for the first time in its decade in business.
“Transferring onto online really, I’d say, saved us,” McCoy said.
While the past quarter’s revenue marks a milestone for Shopify, the year-over-year increase is down from sales growth of 97 per cent in Q2 of last year amid the mass migration to e-commerce.
Richard Tse, an investment analyst with National Bank Financial Markets, told Global News this week that most market watchers were expecting a slower pace of growth a year after the pandemic boom.
“Last year, the pandemic caused a big spike in their second quarter because merchants had to pivot to online to survive. So, there’s probably a view out there that it will be hard to repeat. There’s probably no denying that,” he said Tuesday.
“I do think that despite that, a lot of these shifts that we’ve seen in the market are permanent. … So that’s allowing them to actually continue to add a meaningful amount of merchants.”
Shopify says it has more than one million merchants using its platform but does not disclose exact figures.
Gross merchandise volume (GMV), the metric that tracks the value of all goods sold on its Shopify-backed stores, was $42.2 billion in the quarter, up 40 per cent year-over-year.
Chief financial officer Amy Shapero said during the company’s conference call with analysts Wednesday morning that while online sales dominated Shopify’s pandemic-era results, brick-and-mortar has since made a comeback. In-person retail now makes up nearly the same percentage of GMV as it did pre-pandemic for the company, but at higher levels now that the overall pie is bigger.
She also pointed to the United Kingdom as an indicator of what’s to come. Britain reopened its economy ahead of many other international markets, thank to strong early vaccination campaign,
GMV for the U.K. grew at a faster rate than the rest of the company’s average, which Shapero said showed that merchants who can make use of “multi-channel” sales — online as well as in-person approaches — are better suited for success.
Shopify president Harley Finkelstein said during the conference call Wednesday that online and physical retail are no longer “mutually exclusive.”
Now that Hintonburg Pottery is set up for online sales, McCoy said she can’t imagine going back. But the in-person experience has always been critical to the wide-windowed west-end Ottawa shop, and is one she expects will remain front and centre as the store emerges from the lingering COVID-19 retail restrictions in Ontario.
But the impetus to shift to online before the pandemic hit was a recognition that brick-and-mortar is no longer sufficient on its own.
“One of the reasons why we did not move to online previous to October in the 10 years we’ve been doing the business is because we really valued the local, in-house, community development. Touching shoulders with our neighbours, having the face-to-face, was a huge value to us,” she said.
“So we clung to that, but that ship was sinking.”
McCoy also credited Shopify’s platform with helping to organize the store’s inventory and streamlining transactions for her staff, which relieved a significant amount of mental stress from her employees during the pandemic.
Finkelstein said during Wednesday’s call that these kinds of relationships — one in which its merchants rely on the company for the critical aspects of the business — are a goal for the company.
“We want to be the most important piece of software our merchants use. We want to be that central operating system,” he said.
Tse noted Tuesday that providing businesses with that level of control over their operations can be a differentiator for Shopify when going toe-to-toe with Amazon, which provides the destination for shoppers but fewer features to help sellers build and manage their online presence.
“So, to the extent that more merchants want that, Shopify is probably one of the few players that can offer that. Whereas you go to Amazon, you’re kind of at the behest of the marketplace,” Tse said.
Shopify also reported its fifth-straight profitable quarter on Wednesday with net income of $879.1 million, or $6.90 per diluted share of the company, in the quarter ended June 30.
That beat most analyst expectations and marked a substantial increase from $36 million a year ago, but the company said that figure includes $778 million in unrealized net gains on its equity investments in other companies.
Shopify’s share price on the Toronto Stock Exchange had been on the rise in the week leading up to its earnings call, but the stock settled somewhat on Wednesday. Shopify shares were trading at $1,923.41 on the TSX early Wednesday afternoon, down 1.8 per cent from market close on Tuesday.