Shopify shares jump as e-commerce company posts higher quarterly revenue than expected

Shopify's third quarter overcame expectations and foretold ambitions to scale-up service offerings from freighting to financial, bucking major losses last quarter and tolls in the tech sector.

Revenue for the Canadian e-commerce startup, which reports in U.S. dollars, came to $1.4 billion in Q3; 22 per cent over that earned in the same quarter last summer. Revenue as a percentage of gross merchandise volume (GMV) reached 2.14 per cent, "the highest level in Shopify's history," said Shopify president Harley Finkelstein during Thursday morning's earnings release. 

Merchant solutions and subscriptions increased 26 per cent and 12 per cent, driving revenue growth with $989.9 million and $376.3 million, respectively. 

The latest operating loss was $345.1 million, or 25 per cent of revenue. Following Q2's $1.2 billion net loss and lay off of 10 per cent of their workforce, Thursday's news was a recuperation. All signs point to "merchants utilizing our solutions to run greater parts of their business," Shopify said in their report, and foretold their plans to scale-up their use in clients sourcing and shipping. 

The company's U.S.-listed shares surged nearly 18 per cent as the results allayed investor worries over a slump in demand that wiped out over three-quarters of market value this year.

 'Important resilience to current market conditions'

"(Shopify's) GMV growth indicates important resilience to current market conditions and is a positive indicator as we head into the very important holiday shopping season," said Third Bridge analyst Charlie Miner.

For the holiday quarter, Shopify expects GMV, or total sales made through the platform, to "outperform the broader U.S. retail market."

Throughout the third quarter, Shopfiy launched their Shopify Collabs service: "a sales channel for merchants to find and collaborate with creators to promote products to new audiences," and create new sales opportunities for creators.

They also brought Shopify Payments services to Finland, the Czech Republic, Switzerland and Portugal, bringing the total number of countries offered the payment service to 22. Shopify also expanded to Italy and France.

WATCH | Shopify lays off 10 per cent of staff:

Shopify lays off 10% of staff amid slower sales

2 years ago

Duration 2:03

Shopify has shed 10 per cent of its staff as sales fall well short of expectations. The Canadian online retail giant is the latest tech firm forced to downsize in the face of rising inflation and fears of a recession.

Shopify's short-term business loan service was also a spending priority in the previous quarter. Loans from the e-commerce company reached $507.6 million last quarter — a 29 per cent increase from last year's third quarter.

Both of those expansions to attract merchants and manufactures will benefit from Shopify's aquisiton of Deliverr, made on July 8. Shopify intends to combine the e-commerce fulfilment company with their inhouse Shopify Fulfilment Network to create a single fulfilment platform, they said, "spanning a merchant's full supply chain." 

D.A. Davidson analyst Tom Forte said the results were "a reflection of (the company's) ability to exploit not only the online e-commerce opportunity but also the offline retail one." Still, Forte warned inflation and a weak consumer spending environment remain challenges as shoppers budget more discretionary income on things such as travel. 

The scale-ups come the same year as major share sell offs across the tech industry. Shopify had earlier in the year layed off 1,000 employees — a tenth of its workforce — as online shopping slumped following the pandemic. Tech giants like Meta have seen revenue reneged thanks to non-traditional software gambles. 

"We're getting a lot more thoughtful about the exact product market fit we can have, and who are the target merchants — and there are a lot of merchants," said Finkelstein during the question period of the Oct. 27 earnings call.

"We're trying to make it so that (they) don't have to worry about logistics. They can offer something that most consumers are coming to expect, which is anticipated delivery time," he said.