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Shopify showing a sense of fulfillment despite recent stock woes


Shopify on Thursday confirmed it would pay $2.1 billion to acquire San Francisco-based Deliverr, a five-year-old specialist in two-day fulfillment, with some 400 employees.

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From the moment Shopify first issued shares to the public seven years ago, there’s been a profound disconnect between the mindsets of investors and the company’s CEO and founder, Tobi Lütke.

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Rarely has this been more evident than on Thursday, when the e-commerce giant published first-quarter financial results that triggered a nearly 15-per-cent slide in the value of Shopify’s shares.

The catalyst was the revelation that the firm’s first-quarter revenues had climbed just 22 per cent year over year to $1.2 billion — lower than expected — and that it had sustained an operating loss of nearly $100 million compared to an operating profit of $139 million during the same period a year earlier. (All figures are in U.S. dollars.)

Yet, there was Lütke on the Thursday morning conference call with independent analysts explaining how Shopify had been hiring top talent from around the globe, including former employees returning to be part of something special.

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“This is all going really well,” Lütke said, adding that his company’s share price — which has lost three-quarters of its value since November — had not really factored into employees’ decision-making.

“Obviously, the stock price comes up (in conversation), but not as much as people think,” he said. “The stock is a snapshot in time where people are making long-term choices.” Which is certainly how Lütke sees the universe.

Many of Shopify’s 10,000-plus employees receive part of their pay in the form of restricted stock units or stock options, the value of which has varied wildly, first with the pandemic-fuelled run-up and lately with the inevitable pullback as life returns to something approaching normal. In short, employees have a visceral appreciation of investors’ experiences.

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But, equally, they have seen up close the advantages of concentrating, as their boss does, on the long haul. Because, even as Shopify’s shares gyrated, the company’s workforce has been laying the foundation for a multi-faceted revenue machine that navigated the pandemic with aplomb.

To see how, let’s reconstruct the firm’s accounts so that its fiscal year ends on March 31. With this adjustment, we can compare the company’s two years’ performance during the pandemic with the 12-month period that immediately preceded its arrival.

During the first year of COVID, Shopify’s revenues doubled to $3.4 billion. In the second, these surged another 40 per cent to $4.8 billion. It’s this performance that makes the most recent quarter appear disappointing by comparison. Nevertheless, the company still appears on track to generate close to $6 billion in revenues for the 12 months ending March 31, 2023: a gain of 25 per cent.

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As for earnings, it’s best not to get too excited about these. Lütke has made no secret of his intention to keep investing heavily in building a company for the ages.

The company’s central goal is to help entrepreneurs get products into customers’ hands. Unlike Amazon, Shopify doesn’t operate a marketplace. Instead, it supplies technology to more than two million merchants. Collectively, the latter generated $43 billion in revenues in the first quarter. Shopify took nearly three per cent of these revenues in the form of subscription fees — for enabling electronic storefronts — and charges for apps, ranging from pay systems to managing customer relationships.

The heart of the system is a Shopify-developed dashboard that tells merchants which of their products are selling well through various sales channels, whether these are purchased online or in person.

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A missing piece has been a large-scale logistics system capable of quickly delivering customer purchases across North America. Shopify on Thursday confirmed it would pay $2.1 billion to acquire San Francisco-based Deliverr, a five-year-old specialist in two-day fulfillment, with some 400 employees. Assuming the deal closes following a regulatory review,  the two firms will integrate their software platforms and jointly develop new ways of cleaning up the messiest part of e-commerce — the journey of the products themselves.

The idea, as always, is to simplify commerce. If Shopify actually does this, the rest should follow — no matter what the stock market is trying to tell it.

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