Shopify on October 27, Thursday, announced financial results for the third quarter that ended September 30, 2022. The results must have brought relief to the shareholders affected by Shopify’s turbulent first half.
Shopify’s Chief Finacial Officer, Amy Shapero, said, “In Q3, we delivered another solid quarter of GMV, revenue, and gross profit dollar growth against the high inflationary environment. From an operational perspective, we recalibrated our organizational structure, successfully rolled out a new compensation framework, and began integrating Deliverr into Shopify”.
“Looking ahead, the flexibility of our platform, breadth of solutions, pace of innovation, and disciplined investment approach position Shopify well to realize the enormous opportunity ahead,” she added.
During Q3, merchants continued to recognize Shopify’s exceptional value and increased their adoption of our essential tools and innovative solutions.
Harley Finkelstein, President, Shopify
Shapero’s Exit
The 2022 third quarter earnings report of Shopify also marks the exit of Shapero from the company. In September, Shopify removed Shapero, CFO of five years and announced Jeff Hoffmeister, an executive from Morgan Stanley to be the next in charge.
“During Q3, merchants continued to recognize Shopify’s exceptional value and increased their adoption of our essential tools and innovative solutions. Our merchant solutions revenue as a percentage of GMV – or Merchant Solutions attach rate – climbed to 2.14%, the highest level in Shopify’s history,” said Harley Finkelstein, Shopify’s President.
Third Quarter 2022 Financial Highlights
- In the third quarter, Shopify’s total revenue rose 22 percent to $1.4 billion compared to Q3 2021. In the first quarter of 2022, Shopify reported 21 percent year-over-year increase and a 16 percent rise in the second quarter of 2022. “On a three-year basis, the total revenue CAGR was 52%,” stated Shopify.
- Monthly Recurring Revenue or MRR rose 8 percent to $107.0 million as compared to the last year. The contribution of Shopify Plus was $35.1 million or 33 percent of MRR compared with 28 percent of MRR reported in the third quarter of 2021.
- Subscription Solutions revenue also increased 12 percent to $376.3 million compared to Q3 2021. The growth was mainly because of increase in MRR and “reflecting lapping of our change in terms to make selling in our app and theme stores free for partners up to their first million dollars annually, terms that we put in place in the middle of the third quarter of 2021,” wrote Shopify on its website.
- Shopify reported an increase in its Gross Merchandise Volume or GMV in the third quarter. GMV witnessed a growth of 11% to $46.2 billion, compared with $4.4 billion increase over the third quarter of last year. Gross Payments Volume or GPV increased to $25.0 billion. GPV gained from the good performance by merchants on Shopify Payments, new merchant adoption across the globe and North America, penetration gains within Shop Pay and the expansion of POS Pro hardware with integrated payments.
- Over the third quarter, Merchant Solutions revenue also increase 26 percent to $989.9 million as compared to Q3 2021. “Increased GMV penetration of Shopify Payments, Shopify Capital, and Shopify Markets, greater revenue contribution from partners, and the contribution from the first quarter of Deliverr,” were cited primary drivers of the growth by Shopify. Merchant Solutions revenue grew 21 percent year over year excluding Deliverr. The growth was adversely affected by around three percentage points because of the strengthening U.S. dollar compared to Q3 of 2021.
- Shopify reported that its gross profit dollars rose 9 percent to $662.3 million, compared to the last year. “On a three-year basis, the gross profit CAGR was 45%,” mentioned Shopify. Adjusted gross profit dollars increased 11 percent to $681.8 million as compared to the third quarter of 2021. The adjusted gross profit CAGR was 46 percent on a three-year basis.
- Irrespective of gains, Shopify reported serious losses in the third quarter of 2022 as well. The company said that the operating loss was $345.4 million, or 25 percent of revenue as compared to the loss of $4.1 million, or 0.4 percent of revenue during the third quarter of last year.
- Adjusted operating loss was reported to be $45.1 million, or 3 percent of revenue, compared with adjusted operating income of $140.2 million or 12 percent of revenue during Q3 of last year. Shopify wrote in its press release, “the difference primarily reflects increases in headcount including Deliverr, and to a lesser extent changes to our compensation framework”.
- Shopify’s net loss was $158.4 million, or $0.12 per basic and diluted share as compared to the net income of $1.1 billion, or $0.905 per diluted share over the same period in 2021. The net loss includes $171.9 million net gain on our equity and other investments. Meanwhile, net income over Q3 2021 included $1.3 billion net unrealized gain from equity and other investments.
- Shopify’s third quarter adjusted net loss was $30.0 million or $0.02 per basic and diluted share. During the third quarter of last year, the adjusted net income was $102.8 million, or $0.085 per diluted share.
Shopify’s Third Quarter Business Highlights
Shopify said that 2022 was an investment year for the company. It primarily focused on four aspects such as “building buyer relationships, going global, going from first sale to full scale, and simplifying logistics”. Below are Shopify’s major business highlights of the third quarter:
- Shopify Collabs, sales channel connecting merchants and creators for effortless promotion of products.
- POS Go, an all-in-one mobile POS device.
- Shopify Markets Pro to enable merchants enter over 150 markets globally. It aims to remove barriers obstructing the global expansion of the business.
- Shopify Payments launched in Czech Republic, Finland, Switzerland and Portugal. Shopify Payments is now available across 22 countries.
- Shopify Capital launched into Australia. Shopify Capital is already available in the UK, the US and Canada.
- Acquisition of Deliverr closed on July 8, 2022.
- Shop Promise rolled out for all SFN merchants in Q3. “Shop Promise is a consumer-facing badge indicating fast and reliable delivery, across Shopify’s Online Store and other popular D2C channels,” stated Shopify.
- Implemented Flex Comp, a model that gives employees authority to decide on how they want to be compensated across base pay and equity.
Forecast
Shopify predicted that its gross merchandise volume or GMV will “continue to outperform the broader U.S. retail market in the fourth quarter”. The e-commerce platform also expects growth in Merchant Solutions revenue and said that it be more than double of Subscription Solutions revenue growth for entire 2022.
It also stated that both total revenue and GMV will be more evenly distributed across the Q4 of 2022. Anticipating further, Shopify said that Gross profit dollar growth will trail revenue growth and operating expense growth in fourth quarter of 2022 will decelerate from the third quarter.
Shopify expects adjusted operating loss for the entire year. Adjusted operating loss amount in the fourth quarter will be comparable to the adjusted operating loss amount in the third quarter, it said.
