Specialist
Former divisional leader at Shopify Inc
Agenda
- Shopify (TSE: SHOP) and its solutions, noting key merchant solutions and newer offerings
- Shopify Payments and Shop Pay Installments, and their positioning and potential
- Competitive dynamics, highlighting Amazon (NASDAQ: AMZN), BigCommerce (NASDAQ: BIGC) and “headless commerce,” as well as Adobe (NASDAQ: ADBE) and Salesforce (NYSE: CRM)
- 1-3-year outlook, highlighting opportunities and risks
Questions
1.
How would you describe Shopify? People have become familiar with it as a company or a brand but also as an institution enabling e-commerce, given how essential it has been since the start of the pandemic.
2.
People perceived Shopify as all about e-commerce and selling products but I think they now realise that the company has built so much more. What do you think is the secret to its success? A lot of companies have tried to become what Shopify is now – a leading enabler of commerce of all types that empowers small businesses to scale and succeed – and it recently had a market capitalisation of USD 150bn.
3.
Shopify’s subscription product is significant but merchant solutions is the company’s dominant revenue driver and has been for some time, accounting for more than two-thirds of revenues in Q1 2021 with 137% growth. As we discussed, Shopify does so much more simply enabling e-commerce, including solutions for payments, shipping, fulfilment and securing working capital. Could you discuss those offerings? What do you think will be most important to the company?
4.
Payments is arguably Shopify’s single largest revenue contributor and you said it is being made available in 15-20 countries. What is that as a percentage of the total number of countries that Shopify could offer that product in? How do you expect that to trend? Are there other countries available and the company has just not got around to it yet? Are there legal or regulatory hurdles? How should we consider its penetration in countries and GMV, given you said nearly 50% of that was processed using Payments?
5.
The 15-20 countries that Shopify Payments is in are likely some of the most important countries for e commerce and GMV, as you pointed out, but it means there is a lot of headroom because Shopify is in 150-200 countries overall, I think. It sounds like the company is committed to expanding Payments to other countries, but it must also enable more within the existing 15-20. You said the adoption rate for those countries is around 90% – do you think that is where it wants to be or is there more work to be done? For the other countries, it sounds like it is a matter of time before Shopify has to work with more local players. How do you anticipate the penetration of Payments as a percentage of GMV over the next 1-3 years?
6.
Do you think Shopify has already started the process of working with other third-party payment-type partners, given the company might not be able to get to where it wants to be with Stripe? It sounds like some emerging economies will require continued blocking and tackling.
7.
How do you expect the penetration of payments as a percentage of GMV to trend over the next 1-3 years? You mentioned 50%, but could it get to 75%? Do you think there is a ceiling?
8.
Shopify’s Affirm relationship was announced less than a year ago and you mentioned that it seems to only be available in the US. What do you think the economic benefit is from Shop Pay Installments? It opens up potential buyers for certain high-price goods so there will be more potential customers as well as increased GMV, but do any direct economics flow to the company? Could this change depending on how it rolls out increasingly across the US and some of the western countries you referenced?
9.
What penetration do you think Shop Pay Instalments could achieve in 1-3 years, either in the US or as a percentage of GMV more broadly?
10.
You mentioned the notion of shipping and fulfilment mostly being a new category for Shopify. The company launched it in 2019, then made a significant acquisition of 6 River Systems in September of that year, its largest acquisition to date. The company presumably has a template and a process for payments of all kinds, but this category seems like a work in progress. Is there anything that we should monitor that might indicate the progress that some would expect?
11.
Shopify describes its TAM for SMBs at over USD 150bn, indicating the entrepreneur and larger-brands TAMs are smaller. It estimated the SMB TAM as USD 78bn in 2020, I think, so nearly half of its most recent estimate. Do you think that is reasonable? Coronavirus drove interest, adoption and activity, but how sustainable do you think that is? Merchants and consumers shifted to e-commerce but economies are reopening and things are returning to normality. How should we consider that in the context of Shopify and how it frames its TAM?
12.
How would you characterise the competitive landscape? How do you think Shopify positions itself to succeed? I think people consider the competition via the kinds of vendors, merchants and entrepreneurs using these solutions to enable sales. High end, enterprise-type customers include Adobe, Salesforce with Magento and Commerce Cloud, which used to be called Demandware. A lot of people focus on BigCommerce in the mid-market – it went public less than a year ago and has made good headway. There are a lot of competitors on the lower end, including Squarespace, which recently went public, as well as Wix and WooCommerce.
13.
You noted the importance of Shopify’s partner ecosystem, but how might that narrative play out with customers that have grown and have more financial flexibility? BigCommerce comes to mind around headless commerce and it has really pushed that narrative, which includes a great platform and flexibility. With Shopify, it sounds like there is limited choice with payments, whereas you can bring your own payments provider with BigCommerce. I think some would say that the combination of functionality and flexibility, along with the price point, seems right for certain types of mid-market or enterprise merchants while Shopify is perhaps too confining and structured with not enough optionality.
14.
How do you think Shopify responds in contexts where it has a more advanced merchant that wants a combination of functionality and flexibility? Does it loosen things up and provide more flexibility? Does it hammer home the value proposition coupled with partner choices?
15.
What about service and support, which some would highlight as an area that Shopify’s competitors perform better in? Could you imagine a scenario where Shopify doubles down on service and support, whether via the comprehensiveness of the support solution or having a dedicated team always available, especially as it aims to build out trust?
16.
What should Shopify do to grow? The company did not need to do much over the last year to deliver substantial growth, but what should it now emphasise to drive gains? It talks about growing the merchant base and merchant revenues, plus continued innovation and platform expansion. It has achieved significant releases across mobile, payments, shipping, capital, fulfilment, e-mail, pay instalments and shopping. It is also continuing to grow and develop the ecosystem and the referral system, as well as building for the long term. Which of those strikes you as the most significant?
17.
Roughly two-thirds of Shopify’s revenues were from the US in 2020. How should we consider that in conjunction with the company’s spending priorities? How should we anticipate its international build-out? What should be its top spending priorities to engineer growth?
18.
To what extent do you think Shopify should become more aggressive around M&A? A company with a USD 150bn market cap and a largest deal size of under USD 500m implies that more could be done. What areas do you think it should focus on? Would it make sense for it to consider agencies to increase adoption?
19.
What do you think is the biggest risk for Shopify over the next 1-3 years?