Specialist
Former VP at Shopify Inc
Agenda
- Analysing when GMV will reaccelerate and Shopify’s (NYSE: SHOP) positioning when it does
- Threat of Amazon’s (NASDAQ: AMZN) Buy with Prime and implications for Shop Pay’s growth
- SFN (Shopify Fulfillment Network) update – CAPEX trends and expected ROI timeline
- Shopify Plus and 3-5-year expectations for membership, highlighting key product segments for driving growth
- How do we expect Shopify to balance its growth vs profitability challenge?
Questions
1.
Could you give a brief overview of Shopify’s overall operating environment, and pull out 2-3 key trends or drivers you think we should be paying attention to when looking at the business in the e-commerce, website building and hosting industry, more broadly?
2.
I think a lot of people are talking about the newly released presence of Buy with Prime. What were your thoughts when you heard about this offering from Amazon, and what might be the potential impact it could have on e-commerce platforms such as Shopify?
3.
You said that while a deal between Amazon and Shopify might erode Shopify’s dollars per merchant, it could grow its total number of merchants. How would that happen? Would it from consumers being more willing to checkout, leading to a higher conversion rate?
4.
What are your predictions for how a partnership will look between Shopify and Amazon? What might be the timeline and the potential impacts it would have on revenue in the short, medium and long term?
5.
Seemingly, one of the other areas Shopify would want to be careful about disrupting is its Shop Pay product. This has been something that seems to have been very successful over the past couple of years, with the company growing it globally. The number I read is it’s now processing over half of its GMV checkout on Shop Pay. What do you think is the trajectory of this product, and does this potential partnership with Buy with Prime threaten the revenue that the company now generating from this very important business segment?
6.
We talked about how the trajectory has been great of Shop Pay, currently exceeding 50% in GMV processed. What do you think the total potential is there? Can Shopify get that to 60%, 70% or 80%, or is it going to start to get more and more difficult as we get into higher figures?
7.
We talked about the SFN [Shopify Fulfilment Network], and how it really continues to be a dilutive capital-heavy investment that seemingly isn’t really close to generating ROI. What are your thoughts on the trajectory of SFN, and whether the company is going to need to continue to dump billions of dollars in to make this a suitable fulfilment and delivery solution?
8.
Do you think it’s been a mistake for Shopify to put billions of dollars into developing the SFN infrastructure, or at least the early parts of this infrastructure? Or do you think it was necessary, at least for some of the company’s smaller merchants, and then it can rely on the partnerships you mentioned for some of the bigger ones for future logistics?
9.
Do you expect Shopify to put billions of dollars more into SFN in the short term, or do you think that it’s going to scale back for now, allow it to scale with what it already has and continue to gain traction and good reviews? Or are we going to see the company making these significant capital investments on a yearly basis?
10.
You mentioned the POS [point-of-sale] system has been a focal point for Shopify, as it’s tried to build out an offering more suitable for mid-market and enterprise clients. How much success do you think the company has had building out this POS offering for bricks-and-mortar stores, and what might be the general trajectory of its enterprise and mid-market customer segments?
11.
Shopify reported that offline GMV was up 40% YoY in its Q4 and full-year 2022 results. Would you say that’s a meaningful rise, or was it a pretty small base and therefore not much of an accomplishment?
12.
What are the other key challenges for Shopify in capturing the mid-market and enterprise customer segments? Is it just the POS, or are there other shortcomings on the platform that the company needs to improve before it finds success there?
13.
One of the key themes you touched on is that while Shopify still dominates in SMB, there’s discussion as to whether it’s nearing max penetration in that space. How far out do you think we are from SMB not being able to drive the upwards-teens, low-20s growth rates that the company is looking to achieve? Do you think, in this transition period, that it’s going to be able to get enough market share or a strong enough solution for mid-market and enterprise segments to make up for that potentially lost revenue from SMB, or growth at least?
14.
Over what timeline will we reach a point where Shopify is dominating the mid-market e-commerce platform building and hosting space? Who’s leading there today?
15.
Shopify lowered its growth guidance for 2024 down to 19%. Understanding SMB might struggle to drive huge growth like it has in the past, does the mid-market opportunity have the potential to re-accelerate the company back above 20%, maybe significantly above that? Or is it more so going to be using that to maintain the now mid-to-upper-teens growth that it’s hoping to achieve in 2023?
16.
We said the pandemic was an enormous tailwind to e-commerce spend, and that things are starting to normalise now. How do you think 2023 is going to be in terms of e-commerce spend vs the years following it? Do you think we’re going to see a re-acceleration? Do you think the general mid-teens CAGR for the industry is what we can expect from Shopify?
17.
I don’t think anyone’s questioning that e-commerce is going to continue to grow. However, in terms of market share, understanding Amazon is so far above everyone, and Shopify number two, how do you think Shopify’s market share is going to trend in terms of e-commerce spend and being able to capture that over the next 1-3 years or so?
18.
We mentioned a potential saturation or point of limited growth within the SMB segment, but is there anything else that you could identify that could potentially be a barrier or disrupt the growth trajectory of Shopify in the short-to-medium term?
19.
In terms of Shopify’s software and subscription sides, the company reported that MRR grew 7% from Q4 2021 to USD 109m in Q4 2022. Could you comment on Shopify Plus and how adoption is trending? Among the different apps and business segments you’ve discussed, which are the most important drivers for getting adoption of Shopify Plus?
20.
You said Shopify Plus is generally aimed at retailers or online merchants with over USD 1m in GMV. What percentage of its merchant base do you think fits into that bucket? How big is that target audience or internal TAM among its already-installed base of merchants?
21.
2022 was super difficult in terms of multiples, and many companies saw 50%, 70% and 90% drops in valuation. However, as we compare where Shopify is today, on 8 March 2023, to where the company was pre-pandemic in March 2020, its valuation is down 20%. Obviously, profitability has become a key concern, but how would you compare the status and trajectory of the company now to where it was pre-pandemic?
22.
What are your thoughts on the short-to-medium-term profitability concerns for Shopify? That’s obviously been a key concern for investors and something a lot of people are paying attention to. It’s trying to cut loss. Is that something the company is going to be able to improve in the short and medium term, or do you think it’s part of its strategy of, “We’re pushing into mid-market, we have to make a lot of product investments and, in 3-5 years, we’re going to start to see the ROI and we’ll see a dramatic increase in profitability”? What’s the trajectory there?
23.
Shopify announced that it will be raising prices by 33%. What do you think the impact of that will be? Will we see any churn, or could that lead immediately to a significant uptick in top-line revenue?
24.
You said Shopify has more room to increase prices. As the company increases prices by 10%, how does that translate to revenue? What percentage of its revenue is being driven by these initial subscription prices?
25.
Is there anything we haven’t covered, or are there any points you want to put out there that you don’t think we’ve done justice to so far that investors should be paying attention to around Shopify?
26.
What are your expectations for Shopify’s Q1 2023 performance?
