E-commerce trend will continue ‘well beyond pandemic,’ Finkelstein says as Shopify reports record Q1 profit

Shopify sign
Shopify sign

Shopify blew past analysts’ expectations with another record-breaking performance in the first quarter ​– and executives at the Ottawa-based e-commerce giant say they don’t expect the surge in online sales that’s fuelled the firm’s growth to slow down even after pandemic-related restrictions are lifted.

Shopify, which keeps its books in U.S. dollars, said net income soared to US$1.26 billion in the first three months of 2021, up from the US$31.4-million net loss it reported for the same period last year.

The company’s net income for the period ended March 31 amounted to US$9.94 per diluted share, up from a loss of 27 cents per diluted share at the same time last year. Shopify attributed the boost to a US$1.3-billion unrealized gain on its investment in “buy now, pay later” company Affirm, which had an initial public offering in January, and to the continued interest in online shopping.

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Even without that one-time benefit, Shopify’s adjusted profit was US$254.1 million or US$2.01 per diluted share, up from US$22.3 million or 19 cents per diluted share a year ago. The firm reported revenues of US$988.6 million, a 110 per cent increase from US$470 million in the same period last year. 

Shopify was expected to earn 73 cents per share in adjusted profits on US$865.5 million in revenues, according to financial data firm Refinitiv.

“While we remain bullish on the (Shopify) name, we were not expecting such strength given the typical seasonality and management’s conservative tone on its outlook when the company reported its Q4 results,” National Bank Financial Markets analyst Richard Tse said in a note to clients on Wednesday afternoon. 

“To us, the results underscore the company’s ability to execute and that’s promising given a number of meaningful growth initiatives that are still early in their development.” 

In another key indication of Shopify’s growing market momentum, its gross merchandise volume – the total value of orders facilitated through its offerings – amounted to US$37.3 billion in its latest quarter, up from US$17.4 billion during the same period last year.

President Harley Finkelstein told analysts more small retailers and big-name brands are using the platform than ever before, and he doesn’t see that trend reversing in a post-COVID world.

“I think you’re going to see this (e-commerce) trend continue well beyond the pandemic.”

“Consumer preferences have shifted permanently,” Finkelstein said. “The centre of gravity was off-line. It is now online, and there’s no going back to the pre-pandemic version of that.”

In places such as Australia and New Zealand that have already begun to reopen their economies, Shopify is “not seeing any slowdown whatsoever in terms of consumers buying from our merchants,” he added. “I think you’re going to see this trend continue well beyond the pandemic.”

Finkelstein said there’s a “massive runway” for growth in e-commerce, noting that online transactions still account for less than 30 per cent of all retail sales in North America. 

Shopify has spent much of the last five years preparing for that growth, building out a fulfilment network, signing a series of social media deals, engineering new ways for entrepreneurs to access capital and positioning itself as a rival to Amazon.

As another example, Finkelstein said Shopify is constantly looking for ways to integrate its platform into channels such as Instagram to foster “social commerce” and connect to a wider range of buyers and sellers.

Cautionary tone

“We are creating new entrepreneurs, and we’re trying to make it as easy as possible for them to be more successful,” he said.

At the same time, however, executives were quick to caution analysts that it’s unrealistic to expect Shopify to keep posting such eye-popping year-over-year growth rates indefinitely.

Chief financial officer Amy Shapero noted that as more countries roll out vaccines and consumers start to move about more freely, some retail spending will inevitably shift back to traditional brick-and-mortar outlets.

“We don’t expect the surge in e-commerce that happened in 2020 to repeat,” she said. “We continue to expect to grow revenue rapidly in 2021, but at a lower rate than in 2020.”  

Meanwhile, chief executive Tobi Lütke sought to reassure analysts the company’s core leadership group remains strong despite the expected departure of nearly half of the firm’s C-suite executives in the coming months.

As first reported in OBJ, Shopify chief talent officer Brittany Forsyth, chief technology officer Jean-Michel Lemieux and chief legal officer Joe Frasca are all planning to exit the company in June.

Over the course of the pandemic, Shopify also saw the departures of chief product officer Craig Miller, director of product marketing Arati Sharma and Michael Perry, the director of Kit, an artificial intelligence business Shopify acquired in 2016.

“When people leave companies, it’s hard for everyone to figure out how to react to that, but I do think that it’s something that should be celebrated because clearly, incredible things have been done together,” said Lütke, who took over Miller’s duties in September.

He vowed Wednesday that he’s not going anywhere soon and told analysts he’s “all in” because “I’ll never come up with a better idea.”

“Leaving at the right time is something world-class executives do,” he said. “For me, it would be way too early.”

Shopify’s shares were up more than 11 per cent to $1,591.91 in late-afternoon trading on the Toronto Stock Exchange.

 – With additional reporting from the Canadian Press

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