Shopify Revenue Surges As Pandemic Brings More Business Online
E-commerce platform and payment provider Shopify reported its first-quarter revenue that surpassed analysts’ estimates as more businesses moved online to survive coronavirus pandemic.
The Ottawa-based company Shopify said in a statement that sales grew by 47% to $470 million from the same quarter a year ago. However, analysts expected revenues to come to around $443 million
The key metric of gross merchandise volume which represents all goods sold on the platform 46% to 17.42 billion compared to the previous year. Again, beating analysts expected volume to $16.68 billion.
While sales were booming, the company still posted a net loss of $31.4 million or 27 cents a share. However, on an adjusted basis, the company posted a profit of $22.3 million or 19 cents per share for the first quarter of 2020 compared with an adjusted profit of $7.1 million or six cents per share for the same period last year.
CEO Tobi Lutke said in the quarterly release,
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.
Moving Online
Shopify reported a fall of 71% in gross merchandise volume through its store point-of-sale as stores shut down due to pandemic between March 31 and April 24. Companies also downgraded from Shopify Plus to lower-priced plans.
Also, it throws light on the drop in point-of-sale purchases from the brick and mortar stores questions the sustainability of online switch. It provides store based point-of-sale systems to merchants to operate from a single platform in order to maintain online store and sales.
It is closely observing consumer spending habits online and the ability of brick-and-mortar retail merchants to shift sales online. According to the company statement, Shopify retailers managed to replace 94% of their store volume with online sales.
Retail merchants are adapting quickly to social-distance selling, as 26% of our brick-and-mortar merchants in our English-speaking geographies are now using some form of local in-store/curbside pickup and delivery solution, compared to 2% at the end of February.
Chief technology officer Jean-Michel Lemieux noted the surging demand and had U.S. Black Friday-type of traffic as businesses have used Shopify to stay afloat as nationwide lockdown forces retail store closure across the world.
Impact of COVID-19
This pandemic has strained small and medium-sized businesses and accelerated the shift of buying habits to eCommerce. Shopify introduced many initiatives to support merchants and help entrepreneurs start a business online during the ongoing COVID-19 pandemic, including, offering tools to businesses to open their own digital store online across channels including social media.
An extended 90 day free trial for new sign-ups, gift card capabilities to merchants, and introduction to in-store or curbside pickup and delivery options for greater flexibility in the movement of inventory between different locations.
The company stated that the new stores created on the platform grew 62% between March 13 and April 24 versus the prior six weeks, driven by both first times and established sellers. But is also added,
It is unclear how many in this cohort will sustainably generate sales, which is the primary determinant of merchant longevity on our platform.
What analysts have to say
Few analysts still don’t see Shopify profitable enough in the future to justify the current stock price. They believe the rally is overdone.
Barry Schwartz, chief investment officer at Baskin Wealth in Toronto notes that as they grow, the company will face fierce competition from rival Amazon. He added,
They’re up against some very heavy hitters and I don’t think those guys are going to let Shopify win everything.
Buying it here at that valuation, you’re essentially saying, ‘I don’t care.’
Canaccord Genuity downgraded the stock, with a warning “we’re not entirely convinced” that gross merchandise volume “is as bulletproof as perceived.”
Verizon Media Expands DSP to Offer Premium Native Ad Inventory.
Verizon Media has announced the expansion of its demand-side platform bringing in premium, programmatic, and now its full native marketplace inventory, formats, targeting, and measurement into a single unit.
The DSP gives a unified solution to the advertisers to check on every aspect of their buys across all formats and inventory purchases- from planning, buying, and management to optimization.
Today, people are using more screens and devices than before. Therefore, it becomes challenging for advertisers to provide a personalized and unified experience across the media mix. This level of fragmentation eventually leads to using different tools for different formats and then measuring the success of each of them would be laborious. But now advertisers can have access to omnichannel inventories including mobile, digital out-of-home, CTV, video, and audio along with native advertising from a single dashboard.
According to Iván Markman, the chief business officer at Verizon Media,
The Verizon Media native [ad] experience was separate from the programmatic capabilities in our DSP…Now both are one, and this includes a lot more consistency [campaign] planning and measurement and attribution. Over the last few quarters, we’ve looked at bringing more transparency and insights to our DSP.
The expansion of DSP’s functionality provides exclusive access to native ad inventory from Verizon’s owned and operated properties like Tech Crunch, Yahoo, and Huffington Post. The robust native marketplace format and premium inventory along with the programmatic offering, supported by 1st party data will help advertisers navigate a cookie-less environment.
In an era when media agencies are on hiring freeze if not headcount cutbacks, it was essential for the company to improve the efficiency of the tools. Markman stated, “You can now do more with less.“He further added,
Sometimes you’d have seven different platforms for things like digital out of home and native then display. Many of our clients have unfortunately had to furlough some team members or lay off their workforces. This helps with performance.
Facebook Post Strong Earnings in Q1’20, Exceeds Analysts Projections
Its earnings season and Facebook has some relatively good news on that for the investors. It has impressively beaten Wall Street expectations on revenue and earning per share (EPS). Facebook ad revenue grew by 17% Y-o-Y despite the instability in the digital ad market due to COVID-19.
Why does it matter?
Interestingly, Facebook was able to beat top and bottom-line revenue expectations amid the coronavirus crisis showing how its business is strong and growing. However, the company didn’t provide specific revenue guidance for Q2 due to the ongoing uncertainty but offered a snapshot on the revenues of upcoming quarters.
- Meanwhile, Facebook said that the current rise in engagement will continue but the usage will come down once the stay-at-home orders are lifted.
- The digital advertising industry has taken a hard hit due to shelter-at-home orders globally. Facebook said in a statement, “We experienced a significant reduction in the demand for advertising, as well as a related decline in the pricing of our ads, over the last three weeks of the first quarter of 2020.”
Let’s talk numbers
- Earning per share (EPS): $1.71 vs. $1.75 per share forecast by Refinitiv
- Revenue: $17.74 billion vs. $17.41 billion forecast by Refinitiv
- Daily active users (DAUs): 1.73 billion
Image Credit: Facebook
- Monthly active users (MAUs): 2.6 billion
- Family Monthly Active people (MAP): 2.99 billion monthly users across its family of apps. This metric helps to measure Facebook’s total user base across its main app, Instagram, Messenger, and WhatsApp.
- The average revenue per user (ARPU): $6.95
- Other revenue: $297 million which is driven by sales of VR headset ‘Oculus.’
- Cash and cash equivalents: $60.29 billion
What lies ahead?
- Facebook is the third internet company that posted strong Q1 results after Snapchat and Google despite the hindrances in the digital ad market. This shows big internet companies will keep dominating the advertising ecosystem due to the pandemic.
- CCS Insight chief operating officer Martin Garner believes the impact of the virus will lead companies to use digital services from advertising to collaboration.
“………..Although Google and Facebook will take a hit from Covid-19, we expect them to be leading indicators of recovery, as digital advertising and other services show early growth in economies getting back to normal.”