Shopify powers more than 1 million businesses worldwide. Company grown from 5 employees to 5000 employees worldwide. Shopify created simplified way how to have your own e-commerce website that impress customers with inbuilt features.
In order to create simple e-commerce website Shopify created more than 70 themes that are easy to use even for people without software engineering degree. Quite simple drag-and-drop store builder that designed for all type of gadgets. Shopify Mobile App provide access to real time orders, statistics, fulfilment from phone. Shopify merchants may provide order tracking for customers. In order to provide quick and secure check outs Shopify use Shopify Pay, Google Pay, Amazon Pay,PayPal and other payment gateways to gather to different buyers worldwide. All inventory synchronized across all sale channels. Shopify could be used as a blogging platform.
Merchants could customize their Shopify website because of access to HTML and CSS. Online seller could use own domain or purchase domain name through the Shopify. For every merchant provided SSL certificate (256-bit). Shopify support search engine optimization, unlimited bandwidth, Level-1 PCI compliant, Google analytics, meta tags, keywords, sitemap generation, social media integration, discussion forums, discount codes, gift cards, product reviews, etc.
Merchant receive benefit of flexible shopping rates and can select free shipping if customer purchase more. Shopify automatically calculate taxes and apply it.
Some customers add products & services in shopping cart and abandon it. In order to execute more sales available option of sending abandoned check out list to customers through the e-mail. Custom fulfilment solutions provided by Shopify’s partners. Refunds done easy and merchandise updated automatically.
Recently popularity gained dropshipping because seller don’t need to have inventory and customer receive product shipped from wholesaler.
- Basic Shopify: $29 per month, staff 2 accounts, shipping discount up to 64% (USPS, UPS, DHL Express), online credit card rate $2.9% + 0.30c, in person credit card rate $2.7%.
- Shopify plan: $79 per month, staff 5 accounts, professional reports, shipping discount up to 72%, online credit card rates $2.6% + 0.3c, in person credit card rate $2.5%.
- Advanced Shopify: $299 per month, staff 15 accounts, shipping discount up to 74%, online credit card rate 2.4%, in person credit card rate 2.4%, up to 8 store location.
As of Dec 31, 2019 Shopify had over one million merchants from 175 countries: US 52%, UK 7%, Canada 6%, Australia 6%, rest of the world 29%. Not even a single merchant represented more than 5% of total company’s revenue. Shopify attract new customers in all possible ways including offline sale channel (trade shows, events, conferences, etc). Company have competitors but it stimulate growth and constant improvement.
- Subscription (monthly, yearly, multi year), sale of custom themes, sale of apps, domains. Subscription fees are non-refundable.
- Merchant generated revenue (accepting payment, transaction fee, shipping, fulfilment, referrals, point of sale hardware, warehouse, work capital).
Main risk factors according to annual report filed with SEC:
- Risks related to growing customers base and customers retaining.
- Financial risks related to change in economic conditions, taxes, exchange rates, international and countries law, etc. Company’s ability to satisfy obligations and effectively manage growth.
- Company’s debt and possibility that profitability may not be achieved.
- Shopify use open source software.
- Technical risks: software malfunction, cloud-hosting, internet shut down in some territories, etc.
- Leak of customers private data, hacking attacks, compliance with privacy law.
- Fluctuation in online shopping (seasonality) and changes in search engine optimization.
- Shopify investments may not provide expected returns.
- Misuse of brand name and sale of fake items.
- Risks related to stock exchange and common stock.
- Legal cases against the company.
Shopify growth strategy focused on rapid growth of business that will increase revenue base. Consolidated financial report 2019 based on generally accepted accounting principles in US (”US GAAP”) and reported in US dollars. This makes easier to understand Shopify financials because it’s Canadian company. Exchange rate (Feb 6, 2020): $1.00=CAD$1.3290.
Stock structure: Class A subordinate voting shares, Class B multiple voting shares, preferred shares. Class A and Class B stock ranked pari passu with respect to the payment of dividends, return on capital, distribution of assets in case of liquidation & dissolution & winding up of the Company. Both classes of stock eligible for dividends. Class A each share equal to 1 vote per share, Class B each share equal to 10 votes per share. Class A stock representing 89.8% of total outstanding shares and equal to 46.8% of the voting power. Class B stock collectively represent 10.2% of total outstanding shares and represent 53.2% of the voting power.
During 2019 Shopify share shown high volatility and high traded volume in NYSE. Lowest share price was $129.48 and highest price $416.60. Shopify stock also traded on Toronto Stock Exchange. Lowest price 174.59 Canadian dollar, highest price 544.00 Canadian dollar.
Main financial data from Shopify Inc consolidated balance sheet:
- Revenue $1.58 billion (subscription solutions $642 million, merchant solution $935 million).
- Revenue by geographic location: Canada $96 million, US $1 billion, UK $104 million, Australia $68 million, rest of the world $230 million.
- Cost of revenue $712 million (subscription solutions $128 million, merchant solution $584 million).
- Total operating expenses $1 billion (sales and marketing $473 million, research and development $355 million, general and administrative $179 million).
- Loss from operations $141 million.
- Other income (net interest income $48 million, foreign exchange loss $3 million).
- Net loss $124.8 million.
- Comprehensive loss $111.5 million.
- Current assets total $2.7 billion (cash and cash equivalent $650 million, marketable securities $1.8 billion, net trade and other receivables $90 million, net merchant cash advances and loans receivable $150 million, other current assets $49 million).
- Current liabilities $316 million.
- Long term liabilities $157 million.
Shopify Inc acquisitions. Helpful.com (build mobile products through the use of artificial intelligence). Handshake Corp (company specialize on developing B2B e-commerce solutions). Vinderbit Pty Ltd (software for back-office inventory management). Shopify acquired 6RS Inc that provide collaborative warehouse fulfilment solutions. Shopify acquired Tictail Inc that operates e-commerce platform.
Shopify is unique business model but competition is high. As result of this company is not yet profitable (established 2004) but listed in two stock exchanges (NYSE, TSE). Shopify market cap is $55 billion. That’s extremely high market cap considering that company not yet profitable.
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