Shopify (TSX: SHOP)(NYSE:SHOP) recently released a blockbuster earnings report that blew past Wall Street’s expectations. In it, the company reported 110% annualized growth in revenue and $1.3 billion in net income. The quarter’s profit included a massive one-time gain on a subsidiary that went public; earnings were about $250 million without that one-time gain.
It was an incredible quarter. And management thinks that the best is still to come. Until recently, Shopify thought that its growth would decelerate post-pandemic. But recently, management changed their tone, saying that strong growth was likely to continue in the year ahead. In a note to investors, President Harley Finkelstein said that the trend away from retail and toward e-commerce was likely to become the new normal in the years ahead. In this article, I’ll explore Finkelstein’s comments and what they mean for the future of Shopify.
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Growth expected to continue post-pandemic
In a recent analyst call, Harley Finkelstein commented on the future of e-commerce in the post-COVID world. The most noteworthy point he made was that the COVID-era shift to e-commerce was likely to continue post-pandemic: “The centre of gravity was offline. It is now online, and there’s no going back to the pre-pandemic version of that.”
It was a striking statement. As recently as last year, Shopify’s CFO Amy Shapero was warning investors to beware deceleration in the year ahead. Now, it looks like the company thinks the e-commerce boom is here to stay. And it may have good reason to think this. The COVID-era surge in online shopping was partially driven by retail stores being forced to shut down. But with the pandemic having lasted as long as it has, many retail chains have closed permanently. That’s a long-term tailwind for e-commerce, because consumers will have fewer retail options even after the pandemic ends. Additionally, the growth of e-commerce was a long-term secular trend well before COVID began, and there’s no reason for it to not continue when the pandemic is over.
Ready to take on Amazon?
It’s clear at this point that Shopify sees a rosy future for itself and for e-commerce as a whole.
But one question remains: Will it be able to take on Amazon (NASDAQ: AMZN)?
Shopify is in indirect competition with Amazon’s massive online store, which competes with it for a share of vendor’s sales. To be sure, the two companies’ business models are different. Amazon offers a store for vendors to sell on; Shopify provides the infrastructure for businesses to operate their own stores. But they both make money by taking a cut of vendors’ sales, and to the extent that they have vendors in common, success for one could harm the other.
If Shopify is going to “beat” Amazon, it’s got a long road ahead of it. Amazon is a trillion-dollar behemoth doing $368 billion in annual sales. It will take a long time for Shopify to catch up with that. But it could happen. The more vendors realize the cost-saving advantages of hosting their own stores, the more they’ll want to migrate to Shopify. Already, we’re seeing some large businesses going with Shopify as their e-commerce provider of choice. So, it would be foolish to count the company out. It could easily fulfill its long-hyped promise of becoming the “next Amazon.”
