Shopify’s revenue grew in its fiscal second quarter as the company navigated through a mixed consumer spending environment.
The Ottawa-based e-commerce giant reported Wednesday that sales increased 21 percent year-over-year to $2 billion USD for the three-month period ending June 30, 2024. Excluding the sale of its logistics business in 2023, revenue grew 25 percent.
“Shopify is rapidly strengthening its position as a leading enabler of global commerce and entrepreneurship.”
Harley Finkelstein
Gross merchandise volume (GMV) grew 22 percent to $67.2 billion USD and gross payments volume increased to $41.1 billion, representing 61 percent of GMV, compared to 58 percent of GMV from the same quarter last year.
“Our Q2 results make it clear: Shopify is rapidly strengthening its position as a leading enabler of global commerce and entrepreneurship,” Shopify president Harley Finkelstein said in a statement. “More and more merchants across the world are putting their trust in Shopify’s unified commerce operating system to fuel growth and simplify complex operations.”
Shopify sells software for building and operating e-commerce businesses, but has increasingly added brick-and-mortar retailers to its platform with its unified commerce and Shop Pay offerings. Offline GMV grew 27 percent from the last quarter as it added larger global clients with multiple physical store locations, such as Minnesota-based clothing company Evereve and Toronto-based jeweler Mejuri.
Sales from Shopify’s merchant solutions and subscription solutions both increased in the quarter, climbing 19 percent to $1.5 billion USD and 27 percent to $563 million USD, respectively.
Gross profit rose 25 percent to $1 billion USD and gross margin was 51.1 percent compared to 49.3 percent in the same quarter last year. Gross margins grew primarily due to the lack of the dilutive impact of Shopify selling its logistics businesses and changes in pricing plans partially offset by continued growth of payments.
Free cash flow margin more than doubled to 16 percent from the prior year, and free cash flow increased $333 million USD from $97 million USD.
Last quarter, Shopify predicted revenue in the second quarter would grow at a “high teens percentage rate” on a year-over-year basis. Adjusting for the impact of selling its logistics business, the year-over-year increase would be in the low-to-mid twenties.
For the third quarter, the company forecasts revenue to grow at a low-to-mid-twenties percentage rate on a year-over-year basis, while operating expenses are expected to reach 41 percent to 42 percent of revenues from the prior quarter.. Gross margins are expected to climb 50 basis points after the company said it expected it to fall by the same rate in the second quarter.
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In the second quarter, operating expenses fell from $2.47 billion USD the previous year to $804 million USD, due to lower, more targeted marketing spending, decreased compensation expenses and the company’s summer summit event coming in under budget, CFO Jeff Hoffmeister told analysts on the investor call.
Investors responded positively to Shopify’s earnings and forecast, with the share price climbing more than 20 percent in late-morning trading on the New York Stock Exchange. It’s a reversal from investor sentiment in the first quarter, after the company posted a surprise loss, causing the stock to fall by 20 percent following the earnings release a few months back.
The company saw monthly recurring revenue grow 25 percent to $169 million, driven by new and larger merchants added to the platform, an increase in offline point-of-sale usage, and paid trial periods falling from three months to one month.
On the earnings call, Finkelstein said Shopify surpassed $1 trillion in cumulative GMV and launched 150 product updates and features during its Summer 2024 Edition that included a slew of artificial intelligence (AI) announcements.
“We are building for the future and our business model is working,” Finkelstein said, adding that because Shopify has a range of merchants in different verticals, it hasn’t been impacted by mixed consumer spending.
Brands including Toys “R” Us, Mas+ by soccer player Lionel Messi and Dios Mio Coffee by actress Sofia Vergara launched on the company’s platform in the second quarter.
Finkelstein said the company is continuing to grow its international market share, mentioning it rolled out Shopify plans in Japanese yen and launched a website theme specifically tailored to the unique aesthetics of Japanese user interfaces.
Shopify also had its highest month of business-to-business GMV growth in the quarter, up 140 percent year-over-year, Finkelstein told analysts. International GMV outpaced North America, he added, up 27 percent from the previous year, as Shopify continues to add merchants to the platform and roll out more product features for its international users. More than half of the merchants the company added to its platform came from outside Shopify’s core, English-speaking markets, which include the US, Canada, the UK, Ireland, Australia and New Zealand.
Feature image courtesy Shopify.