Shopify sees 47 percent revenue growth in Q1 2020 amid impacts of COVID-19

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Shopify has released its financial results for Q1 2020, the period which ended March 31, 2020. With a total revenue of $470 million, Shopify saw a 47 percent increase from the comparable quarter in 2019. All numbers are in USD.

“The vast majority of people are employed by small businesses, and they struggle the most during a crisis.”

In its report, the Ottawa-based company highlighted the strain COVID-19 has put on small and medium-sized businesses, stating that Shopify is “uniquely position” to help during this time.

“The vast majority of people are employed by small businesses, and they struggle the most during a crisis,” said Tobi Lütke, Shopify’s CEO. “The spread of COVID-19 is going to be a tough time for all entrepreneurs. We are working as fast as we can to support our merchants by re-tooling our products to help them adapt to this new reality. Our goal is that, because Shopify exists, more entrepreneurs and small businesses will get through this.”

Shopify continued to see positive momentum with its subscription and merchant solutions, each with revenue growth of 34 percent and 57 percent, respectively. The company’s gross profits grew 43 percent to $257 million in the first quarter of 2020, compared with $180.3 million for the first quarter of 2019.

Operating loss for the quarter were $73.2 million, or 16 percent of Shopify’s revenue, versus a loss of $35.8 million, or 11 percent for the comparable period a year ago. The losses were the result of a year-over-year increase in the allowance for potential losses related to Shopify Payments and Shopify Capital due to the potential impact of COVID-19. The quarter also saw “significantly more” brand spend compared to Q1 2019 and was the first full quarter of operating expenses associated with Shopify’s acquisition of 6 River Systems, which the company is using to build its fulfillment network.

Even as Canadian companies are struggling amid COVID-19, Shopify has reached milestones, becoming Canada’s second-biggest stock last month as its market value surpassed the $100 billion mark.

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Shopify also had a milestone year in 2019, bringing in $1.578 billion in total revenue, a 47 percent increase over 2018. Its Q4 2019 saw total revenue of $505.2 million, a 47 percent year-over-year increase, despite an interesting third quarter, which gave Shopify its slowest growth rate in four years even as it hit one million merchants on its platform.

Amidst its Q1 2020 financial results, Shopify still saw the impacts of COVID-19. During today’s conference call regarding the results, Shopify CFO Amy Shapero said the company did “extensive” analysis of its overall spending and decided to suspend certain expenditures (in areas like Shopify Plus) for the remainder of the year and redeploy that money into areas that are more “useful,” such as Shopify Capital and a 90 day free trial.

New stores created on the Shopify platform grew 62 percent between March 13 and April 24. However, Shopify Plus took a bit of a hit during that time period with more merchants downgrading from Shopify Plus to lower-priced plans compared to January and February.

Shopify also tracked the shifting trend of consumers spending online versus in-store. Gross merchandise volume (GMV) through its point-of-sale (POS) channel declined by 71 percent between March 13 and April 24 as most of Shopify’s retail merchants suspended in-store operations. Reportedly, merchants managed to replace 94 percent of lost POS GMV with online sales over the same period.

At the beginning of April, Shopify provided an update amid the current global health and economic crises, noting that it ended 2019 “with momentum that continued into January and February of 2020.”

“This will enable us to report revenue and adjusted operating income for the first quarter within or ahead of the range of expectations provided on February 12, 2020, despite the global economic disruption that emerged in March triggered by COVID-19,” the company stated at the time.

At the beginning of April, Shopify also announced it was suspending the financial expectations it had predicted for the full year 2020, amid COVID-19.

During a conference call regarding last year’s results, Shapero said 2020 was set to be another busy year for the company, calling it “a year of heavy investment.” Shopify predicted 2020 revenue to be in the range of $2.130 billion to $2.160 billion and expenditures of approximately $80 million, to be largely related to new office spaces.

Shopify started off 2020 announcing intentions to open its first permanent Vancouver office and a new research and development (R&D) centre in Ottawa to help Shopify test and build out its fulfillment network. Shopify had $1 billion allocated for the network and the R&D centre.

The Ottawa-headquartered company continued to develop its fulfillment network in Q1 2020, opening the R&D Centre and processing its first fulfillments in April. Shopify reports that it signed more new merchants on to Shopify Fulfillment Network in the first quarter of 2020 compared to any previous quarter since its launch in June 2019.

On the company’s conference call regarding the Q1 results, COO Harley Finkelstein stated that Shopify has expanded its fulfillment service (originally only available in the United States) into Canada and has been allowing for some Canadian merchants to access the offering. He added that COVID-19 validates Shopify’s decision to expand into fulfillment, especially as “some incumbent delivery networks are straining.”

“The decision to move into SFN [Shopify Fulfillment Network] feels like the right one, now more than ever,” said Finkelstein.

The financial results follow a number of recent announcements from Shopify including the launch of a consumer-facing mobile assistant shopping app, Shop, a “fully rebuilt and reimagined” Shopify POS system, and the global launch of its email marketing tool, Shopify Email.

RELATED: Shopify challenges its partners to build an app that helps entrepreneurs during COVID-19

In April, Shopify also finally brought its small business loan fund, Shopify Capital, to Canada, after adding $200 million to the fund to help businesses affected by COVID-19.

In its quarterly report, Shopify noted $162.4 million in merchant cash advances and loans were issued during Q1 2020, a year-over-year increase of 85 percent. Shopify Capital also surpassed $1.05 billion advanced overall since its launch in 2016. The company highlighted that its merchants are making greater use of Shopify Capital and anticipated a portion of the funding to go toward business continuity instead of growth activities, as it saw merchants downgrading subscription plans and decreasing their spend on apps in March and into April.

The Ottawa-based company also recently signed one of Canada’s biggest grocery chains, Loblaws, which launched an e-commerce store via Shopify as it expedited its a next-day meal-kit delivery service amid COVID-19.

Shopify did not provide expectations for Q2 2020. In regards to suspending its full-year expectations, Shopify said, “our financial results for the rest of the year are contingent on the duration and scope of the COVID-19 pandemic and the economic impact of actions taken in response, all of which are unknown.”

The company stated that given “the increased uncertainty in the macroeconomic environment, including the greater likelihood of an extended global recession,” Shopify is closely monitoring the impact rising unemployment has on new shop creation and consumer spending; the rate at which consumer spending habits transition to online shopping; and the ability of brick-and-mortar retail merchants to shift sales online.

Meagan Simpson

Meagan Simpson

Meagan is the Associate Editor for BetaKit. A tech writer that is super proud to showcase the Canadian tech scene. Background in almost every type of journalism from sports to politics. Podcast and Harry Potter nerd, photographer and crazy cat lady.