In this analysis of Shopify Inc. (NYSE:SHOP), we examined the company as it released its quarterly earnings in July, which showed a slowdown in revenue growth to just 15% compared to its 5-year average of 64%. Moreover, excluding2020, its 5-year average growth was 59% compared to a 9-year average of 81%. We looked into the company’s user, gross merchandise value (GMV), and take rate growth.
Slowing Users Growth From Average Of 50%
Shopify |
2016 |
2017 |
2018 |
2019 |
2020 |
2021 |
Average |
Users ('mln') |
0.38 |
0.61 |
0.82 |
1.00 |
1.75 |
2.06 |
|
Growth % |
88.75% |
61.32% |
34.65% |
21.95% |
74.90% |
17.95% |
49.92% |
Revenue ($ mln) |
389.30 |
673.30 |
1,073 |
1,578 |
2,930 |
4,612 |
|
Growth % |
89.72% |
72.95% |
59.39% |
47.06% |
85.62% |
57.43% |
68.70% |
Source: Shopify, Khaveen Investments
In terms of user growth, the company’suser basehad expanded significantly in the past 6 years from 0.38 mln to 2.06 mln in 2021 with an average of 49.9%. However, except in 2020 during the pandemic, its growth rate had been decreasing in the past 6 years. According to Etail Insights, there are 5.9 mln, online merchantsgloballyselling on their own website or a shopping cart platform.
Based on this figure, Shopify has achieved a 34.9% market share with its 2021 users (2.06 mln).
Company |
Users ('mln') |
Revenue ($ mln) |
Market Share |
Reviews |
Shopify |
2.06 |
5,003 |
34.97% |
4.3 |
BigCommerce (BIGC) |
0.06 |
182.9 |
1.02% |
4.2 |
Wix (WIX) |
0.425 |
1,311 |
7.20% |
4.2 |
Squarespace (SQSP) |
0.969 |
812.2 |
16.42% |
4.4 |
Contentful |
0.4 |
58.4 |
6.78% |
4.3 |
Source: Company Data,Tooltester,Datanyze,G2, Khaveen Investments
We then compared Shopify with its peers in terms of users, revenue, and market share and reviews (G2). As shown in the table, Shopify leads with the highest numbers of users, revenue, and market share. In contrast, Big Commerce has the smallest number of users with a 1.02% market share, whereas Contentful has the lowest revenue. However, in terms of reviews by G2 which includes criteria such as ease of use, quality of support and ease of setup, Shopify is tied at second place with Contentful and trails behind Squarespace with the highest reviews. Furthermore, Wix and BigCommerce have only slightly lower than Shopify. Thus, we believe that although Shopify had established its market leadership with the highest users and market share, its reviews are similar to its competitors which indicates the high competitiveness of its competitors, and we believe Shopify’s ability to further grow its user base could be challenged by strong competition.
Sales Volume Per User Growth Not Enough To Offset User Slowdown
Shopify |
2016 |
2017 |
2018 |
2019 |
2020 |
2021 |
Average |
GMV per user ($) |
40,795 |
43,186 |
50,122 |
61,100 |
68,382 |
85,022 |
|
Growth % |
6.93% |
5.86% |
16.06% |
21.90% |
11.92% |
24.33% |
14.50% |
GMV ($ bln) |
15.40 |
26.30 |
41.10 |
61.10 |
119.60 |
175.40 |
|
Growth % |
101.83% |
70.78% |
56.27% |
48.66% |
95.74% |
46.66% |
69.99% |
Revenue ($ mln) |
389.30 |
673.30 |
1,073 |
1,578 |
2,930 |
4,612 |
|
Growth % |
89.72% |
72.95% |
59.39% |
47.06% |
85.62% |
57.43% |
68.70% |
Source: Shopify, Khaveen Investments
Moreover, in terms of the company’s GMV per user growth, its growth had accelerated in the past 5 years except in 2020 which coincides with the surge in new users on the platform. In 2021, as user growth continued to slow, its GMV per user growth (24.3%) was higher than its user growth (17.95%) for the year, showing that the user growth is decelerating faster than the GMV per user growth increase. The companypartneredwithGoogle(GOOG) and Facebook (META) in 2021 for Shop Pay, which enables merchants selling on Facebook and Google to use its payment checkout service and integration with its Shop mobile app for order tracking. Recently, the company also expanded its partnership with Google this year with the launch ofYouTube Shoppingand partnered withTwitter(TWTR) for Twitter Shopping. Through the partnership, Shopify’s merchant can automatically sync their product catalog. Therefore, we believe this could benefit Shopify by increasing its merchants' GMV per user as the partnership increases the merchant's reach to more customers.
Overall, despite the growth in GMV per user, its slowdown in user growth had been faster than the rise of its GMV per user growth. Thus, we believe that its GMV per user growth is unable to support the company’s total growth.
To conclude, we determined that Shopify’s growth slowdown was due to the company’s slowing user growth, which we believe could be challenging with strong competition. Despite the accelerating GMV per user growth, its total growth still slowed down as its user growth slowed faster than its GMV per user growth. In terms of its take rate which had been flattish, we believe its ability to raise its take rate could also be difficult as its competitors have similar fees. As seen in the table above, we projected its revenue growth based on user increase, GMV per user and take rate growth based on its 6-year average (excluding 2020 due to the surge during the pandemic) but tapered down by 1% for GMV per as a conservative estimate. In 2022, we forecasted its GMV to grow by only 11% based on its Q2 YoY growth. The analyst consensusprice targetof $41.08 represents an upside of only 3.8%.
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