UPDATED: Shopify CFO sees e-commerce return to normal levels as Ottawa firm reports Q3 revenue up

Shopify sign with cart
Shopify sign with cart

Shopify is starting to see the intense levels of online sales companies garnered during the COVID-19 pandemic ease, officials from the Ottawa e-commerce giant said as the company reported a third-quarter profit of more than $US1 billion.

“As the world begins to return to some normalcy and the extreme levels of online shopping over the past year make way for more in-person retail and experiences, e-commerce’s share of overall retail has reset lower than the peak last year,” executive Amy Shapero said on a conference call Thursday with financial analysts to discuss the company’s latest results.

Despite the downward trend, the chief financial officer of the Ottawa-based technology company said Shopify found e-commerce’s portion of the retail market was still higher than it was two years ago and is poised to resume a more normalized rate of growth for the long-term.

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Shapero’s remarks come as many Canadian provinces and territories have loosened pandemic restrictions and allowed for restaurants and entertainment venues to raise their capacity limits.

Analysts and the retail industry have watched the ease-up closely to develop a sense of whether consumer spending patterns and levels will return to pre-pandemic norms and whether e-commerce will keep up the flurried pace that materialized when some stores were temporarily closed.

Shopify’s online sales software perfectly positioned the company to benefit from the move toward e-commerce, but also made the firm among those most likely to detect retail changes early and be affected by shifts back to brick-and-mortar.

$1.15B profit

In recent months, people started moving around more often and were spending on services, recreation, entertainment and shopping in stores because vaccination was so widespread, Shapero said.

“As a result, in July, we saw overall retail actually dip, and that was because e-commerce dips as folks were moving about,” she said.

“But then we saw a rebound in August for e-commerce … which is attributed to people going back to physical workspaces and kids returning to in-person learning, and then we saw another uptick from August to September.”

Shopify recorded a third-quarter profit of nearly US$1.15 billion, boosted by an unrealized gain on its equity investments, as its revenue rose 46 per cent from a year ago.

The company, which keeps its books in U.S. dollars, said the profit amounted to US$9 per diluted share for the quarter ended Sept. 30 that included a US$1.34-billion unrealized gain on equity investments. The result compared with a profit of US$191.1 million or US$1.54 per diluted share in the same quarter last year.

On an adjusted basis, Shopify said it earned US$102.8 million or 81 cents per diluted share in its latest quarter, down from an adjusted profit of US$140.8 million or US$1.13 per diluted share a year ago.

Churn fears

Revenue in the quarter totalled US$1.12 billion, up from US$767.4 million a year ago, as subscription solutions revenue rose to $336.2 million compared with US$245.3 million a year ago and merchant solutions revenue climbed to US$787.5 million compared with US$522.1 million in the same quarter last year.

Shopify president Harley Finkelstein boasted Thursday the company added several key new customers, including Muji, L’Occitane, Spanx, Dockers and actress Jennifer Aniston’s new Lolavie beauty care line.

But analysts are worried about the company’s ability to hold onto less prominent clients.

“We believe that unit churn is high within the business due to the small and medium-sized business nature of the customer base,” RBC’s analysts wrote in a recent note.

“As the base grows, merchant growth will be harder to sustain given the churn effect on the base.”

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