Specialist
Former head at Shopify Inc
Agenda
- Demand trends for website building services and e-commerce spend on Shopify (TSE: SHOP) sites
- ROI of Shopify’s SFN (Shopify Fulfillment Network) investment
- Revenue potential for Shop Pay, now being used in 13-plus countries
- Competitive landscape and expectations for market share shift as the industry looks to recover over the next 12-24 months
- Macroeconomic headwinds and growth expectations
Questions
1.
Could you identify 2-3 key trends or drivers you think we should be paying attention to when looking at Shopify in the e-commerce website building and hosting industry?
2.
You mentioned Shopify lost some of its pandemic tailwinds, but that the company’s POS [Point of Sale] system and ability to handle retail stores might be helping drive revenue a little bit. What are we seeing in terms of demand for new websites and GMV on Shopify’s site? Has that recovered a bit from the downturn earlier in 2022? How do you expect that demand to trend over the next 12-18 months?
3.
How big of a concern is it that we might not be seeing as much growth around aspirational entrepreneurs? Was that driving a lot of Shopify’s revenue, or is it more so the existing entrepreneurs and companies, as we work our way upmarket, that are more important for future revenue?
4.
Shopify has been trying to get its foot in the door with enterprise focused companies, and has developed the POS system that you’ve mentioned a couple of times, to try to keep people on its platform as they expand their bricks-and-mortar presence. Can you discuss the company’s success in driving sales with enterprise companies and retaining them as it develops its POS system? What are your expectations for Shopify’s enterprise group?
5.
You said you believe Shopify Plus has a strong market fit. Has it gained the traction you expected it to since Shopify rolled it out? What are your expectations for it? Do you think we’re going to see a lot of people upgrading to it given the different products and services that it enables merchants to have? Might it continue to grow at the same rate as its non-enterprise customer segment?
6.
You mentioned the best case scenario would be getting 20% of Shopify’s merchants on Shopify Plus. Is this a possibility? What would be the time frame to accomplish that?
7.
You said Shopify’s SFN [Shopify Fulfilment Network] is a benefit for Shopify Plus customers. This has obviously been a huge capital investment for Shopify, and I think many people really haven’t been seeing the ROI. What are your thoughts on this ongoing investment? Will it ultimately demonstrate the ROI the company is hoping it will, by driving people to Shopify Plus or through other avenues?
8.
You said Shopify is putting a good team in place for SFN and that it has the right idea here, but it’s sinking billions and billions of US dollars into it. Do you think we’re going to ultimately get to a point where we’re seeing an ROI? Is this just going to become an Amazon FBA [Fulfilment by Amazon]-type business, or is Shopify now just trying to recapture some of the money it put into it? Could the company cut this segment and its losses on it?
9.
Do you think Shopify will have to sink billions of US dollars more into SFN to get it to the point where it’s making money and has become a good investment? Will we continue to see this huge capital investment? Alternatively, do you think we’ve reached a point where the pieces are in place, and it’s more about needing time and execution to make it successful?
10.
You said you think Shopify will succeed with SFN in 3-5 years. What’s the best-case scenario for the segment if the company is able to work out all of the issues you’ve discussed? What benefits can Shopify expect to see if it works everything out the way it’s expecting in terms of merchant acquisition, revenue, and platform growth?
11.
Another capability Shopify has been working on improving is it’s ability to help merchants go global with their products through its effective market tools. One of the exclusive partnerships the company uses to do this is with Flow Commerce, who was recently acquired by Global-e in 2021 for USD 500m. Do you think Shopify is going to be successful with this markets tool initiative? When do you think we may start to see some traction with it?
12.
You said it could take up to 10 years to recognise the benefits of the Shopify Markets tool. How big might the revenue opportunity be for this in 10 years? Is this more of a tool as an add-on for Shopify Plus to make more people convert and just a general benefit for merchants? Is this really going to be a revenue driving business segment for Shopify?
13.
How critical are Flow and Global-e to the Shopify Markets tool effort by Shopify vs what Shopify is doing on its own?
14.
Shop Pay has obviously been a tremendous focus for Shopify over the last couple of years and has become a key revenue driver. Can you discuss the current state of Shop Pay, the growth we’ve seen over the last 12-24 months and your expectations for its potential moving forward?
15.
You said some locations simply can’t enable Shop Pay. From what I’ve been able to find, Shopify just reached a point where over half the sales on its site were through Shop Pay. Only two-thirds of merchants have enabled it. Is there anyone in locations where it’s been made available who isn’t using it? Why haven’t we reached closer to 100%? Is that just driven by people that can’t, or people choosing not to still?
16.
Shopify obviously saw this tremendous, unrealistic growth during the coronavirus periods and has seen slowdowns ever since. What are your 1-3-year expectations for the growth rate that Shopify is potentially going to stabilise at?
17.
One of the reasons we’ve seen Shopify’s valuation come tumbling down and people getting concerned about it, is because in 2021 the company accomplished USD 300m in profit from an operating cash flow perspective. In Q2 2022, it lost USD 38m. Do you expect this number to return to positives over the next couple of quarters and the company to return to these significant levels of profitability in the short term?
18.
What shifts in the competitive landscape are you seeing? We know Shopify is making a push upstream. Are we seeing the company capture market share there, and is it retaining its enormous share within SMBs? A company such as WooCommerce has been trying to take share, especially internationally. How are we seeing Shopify defending its SMB share and growing upstream?
19.
Shopify’s Q3 2022 guidance was focused on a rise in new merchants and the deceleration in growth of OPEX. What are your expectations for these two categories come the end of Q3? Are you expecting a 10% growth rate over the next 1-3 years, or do you expect it to be closer to 20% or 30%?
20.
Do you have any specific expectations for Shopify’s Q3 2022 guidance in the short term? Is there anything that you think is important to highlight from a short-term financial perspective?
21.
What do you see as the best- and worst-case scenarios for Shopify over the next 3-5 years? Is there anything else around the company that you think is important to highlight?
