Financial Analysis Shopify Q1 2021 Review - Is the amazon empire over?


Business models have changed drastically due to the rapid evolution of technology. We have all heard of the terms "B to B" and "B to C" to distinguish business models based on the differences in customers. However, in recent years, a new business model called "D2C" has been gaining attention.


D2C stands for "Direct to Customer," a business model in which manufacturers sell products directly to consumers. The D2C model is where the manufacturer delivers the product directly to the consumer through its own channel on the EC site.

When it comes to companies that operate EC sites under the D2C model, Amazon and Rakuten probably come to mind for many people in Japan. However, there is one company that has achieved explosive growth overseas and is known as an Amazon killer. That company is Shopify.

Shopify is a huge Saas-type e-commerce platform company from Canada that provides a service that allows you to open a highly functional online store, and has opened more than 1 million online stores in 175 countries around the world.



On April 28, 2021, the company announced its strong financial results for the first quarter of 2021. As its name implies, it has the world's No. 1 market share, and the results for this quarter were strong. Before discussing the factors behind the strong performance, I would like to describe Shoppify's basic revenue model.




There are two main revenue streams: subscription solutions and merchant solutions.

The subscription solution is the revenue that merchants pay to use Shopify's platform, while the merchant solution is the revenue that Shopify earns by performing functions such as payment processing and delivery.

Both solutions incur infrastructure costs, but the merchant solution incurs additional costs such as network related to payment processing, so the gross profit margin is higher for the subscription solution.

In addition, the merchant solution allows Shopify to earn revenue after the transaction occurs, while the subscription solution allows Shopify to earn revenue upfront (excluding some contracts).

By investing the revenue generated from the high-margin subscription solution in the merchant solution field, the company has been able to create a good cycle of improved profitability and revenue growth.

Now, I would like to examine the factors behind the strong performance this fiscal year.









First of all, the number of companies that switched from brick-and-mortar store business has increased. Demand from companies with brick-and-mortar stores that were unable to operate due to the Corona disaster led to significant growth. In particular, there has been an increase in the number of companies (merchants) that mainly do business in brick-and-mortar stores and have never engaged in EC before. As the number of merchants increased, so did the number of consumers.

Quantitatively speaking, total revenue for this quarter was approximately $990 million, 110% higher than the same period last year. This included subscription solutions revenue of $320 million, up 71% YoY, and merchant solutions revenue of $670 million, up 137% YoY. Monthly recurring revenue (MRR) was $89.9 million, up 62% YoY, as more consumers accessed the platform and contributed to revenue; GMV (transaction volume) was $37.3 billion, up 114% YoY. GMV (Gross Merchandise Volume) was up 114% YoY to $37.3 billion, while GPV (Gross Provincial Value) was up 137% YoY to $17.3 billion, accounting for 46% of GMV transactions.



Next, what does Shopify have that other companies don't? First, there is the cost aspect. The traditional way of developing an e-commerce site requires a lot of resources to be spent on advance preparations such as "preparing your own server" and "implementing a package". However, since Shopifi is based on a subscription model, it is possible to develop quickly without spending a lot of initial costs. Also, compared to other companies, Shopifi offers superior site "design" and "customizability," allowing users to select a pre-designed theme and then modify it to meet their detailed needs.

Secondly, Shopify has the ability to attract customers. In addition, Shopify is a company that is famous for devoting huge resources to SEO. Shopify is well known for its huge SEO resources, so you can really attract customers with SEO x SNS.

The third point is the simplicity of the inventory management system, which is essential for running an e-commerce site. You can also set up inventory tracking and adjust the number of items in stock to prevent orders from being placed when there is no inventory. This is why it has been chosen around the world, not only for its ease of site management, but also for its ease of administration and management.

The last feature is that it is easy to handle cross-border EC. One is the wide variety of payment methods. Consumers are increasingly diversifying their payment methods, and the company supports four payment methods. The company supports four payment methods: credit card payment, mobile carrier payment, convenience store payment, bank transfer, and Amazon Pay payment. Secondly, the company supports multiple languages and currencies. The second is that the company supports multiple languages and multiple currencies, and is ready to support overseas shipping arrangements. The company also handles detailed settings such as tax rates for each country, making it possible to conduct global business stress-free.


The results for the first quarter of FY2021 show that the D2C business has been developing and has been accelerated by the impact of the new coronavirus. In addition, the provision of services that are different and unique from those of other companies has also contributed greatly. In 2021, however, the overall economic environment is likely to improve and consumer behavior will change as countries continue to roll out vaccines and people are able to move more freely. As humans are social creatures by nature, the shift online may continue, but consumers will visit stores to meet new people. 38% of consumers will visit stores that offer an engaging customer experience after the pandemic, according to the EY Future Consumer Index (*1). Therefore, the company's post-pandemic strategy is of interest.







[Q1 Highlights] - Sales: $990 million (+110% YoY) Subscription sales: $320 million (+71% YoY) Retailer services revenue: $670 million (+137% YoY) - Non-GAAP gross margin: $570 million (+114% YoY) - Non-GAAP gross margin: 57% (vs. 56% in the same period last year) - Non-GAAP operating income: $210 million (vs. $(0.1) billion in the same period last year) - Non-GAAP operating margin: 21 - Non-GAAP net income: $250 million (vs. $(0.2) billion in the same period last year) - Non-GAAP EPS: $2.01 (vs. $0.19 in the same period last year) - Operating cash flow: $140 million (vs. $(0.8) million in the same period last year)


[KPI] - MRR (monthly average revenue): $89.9 million (+62% YoY) - GMV (transaction volume): $37.3 billion (+114% YoY) - Take rate: approx. 2.65 - GPV (settlement volume): $17.3 billion (+137% YoY) - GPV/GMV: 46% (vs. 42% in the same period last year)