Bruce Croxon says Shopify’s short-seller response falls short, but company’s metrics don’t

the disruptors

On the heels of Shopify releasing its third-quarter financial results, The Disruptors co-hosts Bruce Croxon and Paige Ellis discussed Shopify’s statements on its Q3 earnings call, which addressed Citron Research’s past criticism of the company.

Ellis said that a metric that many people are “begging for” is the churn rate, as CEO Tobi Lütke only said during the earnings call that “some businesses fail but hundreds of thousands are thriving.”

Croxon provided background on why investors are so focused on churn. “As you grow and scale, the rate you grow at naturally starts to fall off. As that percentage growth gets anywhere near the percentage of people that are churning out the bottom, if you do the math, that means you stop growing.”

“Shopify continues to impress. This is the 10th straight quarter where they have outperformed market expectations.”

During the earnings call, Lütke and COO Harley Finkelstein addressed Citron Research’s Andrew Left questioning Shopify’s business model in early October.

Left said Shopify sells get-rich-quick schemes through members of its marketing affiliate programs rather than advertising legitimate products and businesses, and that the company should disclose the rate at which customers leave.

Shopify’s stock went down by 11.5 percent several days after his statements, and the company responded by saying that it vigorously defended its business model without directly addressing Left.

Shopify execs were more in-depth with their defense during the earnings call. “Some days the stock is high, and some days it’s lower, but over the course of a year, it will approximate to how the company is doing,” Lütke said, adding that the company is not under investigation by the Federal Trade Commission. “Most of our content is about how hard entrepreneurship is, because it is hard. And we are here to have those who are willing to try it. Every 90 seconds an entrepreneur makes their first sale on our platform.”

Finkelstein also talked about the company’s affiliate program, which includes bloggers, publishers, and business coaches that are individually approved by the company and refer new merchants to the platform for an upfront commission.

“Every single affiliate partner that we bring on to the platform has to be fully verified. And once we agree that there is someone that could refer business to us, they have to comply and agree to our partner terms which specify all FTC regulation,” Finkelstein said.

Croxon also defended the company. “To insinuate that the churn is linked to the affiliate program and that people are getting hosed because they’re getting sold on how they can change their life using a Shopify platform…to me is the biggest stretch I’ve heard in tech in the last year and a half out of Canada,” he said.

Shopify’s Q3 results saw the company achieve adjusted operating profitability for the first time as a public company; total revenue in the third quarter was $218 million CAD ($171.5 million USD), a 72 percent increase from the comparable quarter in 2016.

The company’s Subscription Solutions revenue grew 65 percent to $104 million ($82.4 million USD), driven by MRR growth and an undisclosed “record number” of merchants joining the platform. The company’s MRR as of September 30, 2017 was $34 million ($26.8 million USD), up 65 percent compared with $20 million ($16.3 million USD) as of September 30, 2016.

For the full year of 2017, Shopify expects revenues in the range of $835 million to $837 million.
 

“Shopify continues to impress. This is the 10th straight quarter where they have outperformed market expectations. The most fascinating part of the Shopify story to me is how all-encompassing it is: from online and on store sales, serving the needs of small and large merchants, offering shipping, loans- they are the one stop shop for commerce,” said Mark Macleod, founder of SurePath Capital Partners and former CFO of Shopify.

Gross merchandise volume for the third quarter was $8 billion ($6.4 billion USD), an increase of $3.3 billion ($2.6 billion USD), or 69 percent over the third quarter of 2016. Gross payments volume grew to $3 billion ($2.4 billion USD), which accounted for 37 percent of GMV processed in the quarter, versus $1.5 billion, or 39 percent, for the third quarter of 2016.

Net loss for the third quarter of 2017 was $11.9 million ($9.4 million USD), or $0.11 ($0.09 USD) per share, compared with $11.5 million ($9.1 million USD) or $0.14 ($0.11) per share, for the third quarter of 2016.

For the full year of 2017, Shopify expects revenues in the range of $835 million ($656 million USD) to $837 million ($658 million USD). At September 30, 2017, Shopify had $1.1 billion ($926.6 million) in cash, cash equivalents and marketable securities, compared with nearly $500 million ($392.4 million) on December 31, 2016.

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