Shopify Earnings: Price Increases, Headcount Reductions, and Merchant Growth Drive Strength

Narrow-moat Shopify reported good second-quarter results, including meaningful upside to our estimates for both revenue and profitability. 

Dan Romanoff, CPA 3 August, 2023 | 8:53AM
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After the latest earnings, it seems Shopify has had a busy year so far, with the sale of its logistics business to Flexport, a price increase, significant headcount reductions, and recent introductions of artificial intelligence features Sidekick and Magic. Management also provided guidance that was better than we were expecting, although given the logistics sale, we were expecting some disconnect from our model. We see generally positive indicators throughout this earnings report. Given results and guidance, along with some adjustment related to the disposition of the logistics business, we maintain our fair value estimate at $57 per share, (CAD 76, from CAD 78). Shares have appreciated significantly this year, leaving shares fairly valued.

Second-quarter revenue grew 31% year over year (up 31% in constant currency) to $1.694 billion, ahead of our expectations. Subscription revenue grew 21% year over year, while merchant solutions accelerated sequentially for the fifth straight quarter to 35% year-over-year growth. Both segments were ahead of our model. Revenue strength was driven by a combination of good merchant growth and the price increases announced in January. Offline momentum was apparent as well, with gross merchandise volume, or GMV, growing 23% in this channel.

We think that despite macro conditions negatively affecting results, Shopify will continue to find success in attracting larger brands to the platform, especially given the rash of new features, including sidekick and commerce components. GMV grew 17% year over year to $55.0 billion, while gross payment volume processed through Shopify Payments was $31.7 billion, or 58% of GMV. We calculate an attach rate of 3.08%, compared with 2.76% a year ago, and believe this should continue to expand as more merchant solutions are adopted. Monthly recurring revenue was $139 million, up 30% year over year.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar Rating
Shopify Inc Registered Shs -A- Subord Vtg65.03 USD1.80Rating

About Author

Dan Romanoff, CPA  Dan Romanoff, CPA, is an equity research analyst on the technology, media, and telecommunications team for Morningstar.

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