Shopify Q2 2023: In Attack Mode After Ending Logistics Side Quest
Quick summary is Shopify is not having to play defense almost at all, their current base is well-defended and they are playing offense across several new sectors.
GMV, Revenue, and free cash flow are all accelerating relative to last year/quarter, which is all positive. Europe growing faster than US, and POS growing faster than B2C. Plus continues growing faster than Standard versions, and CCS has opened up new Enterprise conversations.
What Are the Highlights of Shopify's Q2 Performance?
GMV accelerated 17% y/y (compared to 15% Q1)
Revenue increased 31% y/y to $1.7 billion (compared to 25% Q1)
Merchant solutions up 35% (compared to 31% Q1) - half of this is due to GMV growth
Subscription solutions up 21% y/y (compared to 11% from Q1) showing effects of price increases.
MRR increased 30% to to $139 million (Q1 Monthly Recurring Revenue3 ("MRR") as of March 31, 2023 increased 10% to $116 million compared to the prior year)
$1.6 billion operating loss due to accelerating stock options related to logistics business ($1.7B one-time acceleration of stock-based compensation related to the sale, including severance) (Q1 Operating loss was $193 million, or 13% of revenue,) == 5.8% operating profit if we assume it’s $100 million
Source: AlphaStreet
What's the Outlook for Shopify in Q3 2023?
Revenue to grow at a low 20s rate.
Gross margin to be 2-3 percentage points higher than Q2.
Operating expenses flat to slightly up.
Accelerating FCF profitability greater in second half than first half.
What Insights Were Shared During the Commentary?
CFO said Shopify has returned its previous margin profile it had before the logistics adventure.
(Fire-) sale of logistics is completed. $1.3B impairment due to logistics sale, $165M in stock-based comp acceleration, and $148M loss due to write-off.
You can see clearly why they wanted to offload this boat anchor / drag on their business model so quickly, despite their previous sunny rhetoric about logistics.
AI is the new “shiny object” on the call, to replace logistics, but harder for analysts to understand since it can’t currently be attached to hard numbers.
Going to be doing increased brand marketing offline like TV, audio, direct mail etc. Historically Shopify has not liked this, but they have quantified the ROI here.
I could only laugh at least a little to hear management discuss new sales methodologies impacting sales, brought in by Bobby Morrison... Only to say, Shopify has always been about product-led growth, and this sounds decidedly more Enterprise-level. At least some of the rebels are growing up!
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