facebookShopify Inc (NYSE: SHOP) 2020 Financial Results: Revenue Almost Doubles For the Year
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Shopify Inc (NYSE: SHOP) 2020 Financial Results: Revenue Almost Doubles For the Year

profileSudhan P
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Shopify Inc (NYSE: SHOP) is one of the US stocks handpicked for our Investing in 2021: 9 Stocks to Consider Buying for the New Year report.

The global commerce company just released a strong set of financial results for the full year ended 31 December 2020.

Let’s take a look at how Shopify managed to boost its revenue and what its future looks like post-pandemic.


TL;DR: Shopify’s 2020 Financial Results

Here’s a summary of Shopify’s latest financials:

  • Shopify’s total revenue for 2020 surged 86% year-on-year to US$2.93 billion.
  • The company turned a net profit of US$319.5 million for the year, an improvement from the loss of US$124.8 million seen in 2019.
  • Shopify’s balance sheet remained healthy, as of 31 December 2020.
  • COVID-19 accelerated e-commerce adoption for Shopify. Going into 2021, the sharp revenue growth is likely to taper off.

Shopify’s Revenue Growth Fuelled by the Pandemic

For 2020, Shopify’s total revenue surged 86% year-on-year to US$2.93 billion from US$1.58 billion a year back. The growth came on the back of online commerce acceleration driven by COVID-19.

An interesting statistic is that in 2020, a new business on Shopify made its first sale every 28 seconds on average versus nearly every minute a year back.

Shopify’s total revenue can be broken down into two parts, one is subscription solutions and the other is merchant solutions.

Subscription solutions revenue, which is recurring in nature, comes mainly from the sale of subscriptions of its platform to merchants.

Source: Shopify

Meanwhile, merchant solutions revenue comes largely from payment processing fees from Shopify Payments, a fully-integrated payment processing service that allows merchants to accept and process payment cards online and offline.

For the year, subscription solutions revenue grew 41% to US$908.8 million largely due to more merchants joining the platform. Monthly recurring revenue (MRR), as of 31 December 2020, was US$82.6 million, up 53% year-on-year.

Source: Shopify 2020 earnings presentation

Merchant solutions revenue ballooned 116% to US$2.02 billion driven mainly by the growth of gross merchandise volume (GMV), which is the total dollar value of orders going through the Shopify platform.

The following chart showcases Shopify’s total revenue growth over the years:

Source: Shopify 2020 earnings presentation

Shopify’s gross profit grew 78% to US$1.54 billion in 2020, compared with US$865.6 million for 2019.

With that, its gross profit margin for 2020 stood at 52.6%, down from 54.9% a year back, but it’s still healthy. The gross profit margin shows a company’s pricing power.

With operating expenses for 2020 rising at a smaller percentage (at 44%) compared to the revenue increase (86% as seen earlier), Shopify was in the black.

Shopify turned a net profit of US$319.5 million for the latest period, an improvement from the loss of US$124.8 million seen in 2019.

This speaks well of Shopify’s operating leverage as each new merchant coming on board its platform doesn’t cause a significant spike in operating expense, and hence, the incremental revenue can flow easily to its earnings.

Shopify’s 2020 diluted earnings per share came in at US$2.59.

Strong Cash Position

Shopify’s balance sheet remains rock-solid.

As of 31 December 2020, Shopify had US$6.39 billion in cash, cash equivalents and marketable securities, up from US$2.46 billion at the end of 2019. The company’s total debt stood at below US$1 billion in 2020.

Shopify’s cash flow from operations for 2020 ballooned over six times to US$425.0 million, up from US$70.6 million a year ago. With capital expenditure of US$42.0 million for the latest year, Shopify’s free cash flow was US$383.0 million.

The free cash flow of a company can be used to reinvest into its own business, acquire other businesses, pay dividends to its shareholders, buy back its own shares, or pay off its borrowings.

Growth Outlook

COVID-19 accelerated e-commerce adoption for Shopify last year. Going into 2021, the sharp growth is expected to taper off.

The company said:

“Our outlook coming into 2021 assumes that as countries roll out vaccines in 2021 and populations are able to move about more freely, the overall economic environment will likely improve, some consumer spending will likely rotate back to offline retail and services, and the ongoing shift to ecommerce, which accelerated in 2020, will likely resume a more normalized pace of growth.”

Therefore, revenue should slow down to a lower rate in 2021.

However, in line with its mission to make commerce better for everyone, Shopify plans to continue helping merchants take advantage of the strong secular shift to online commerce by “investing in initiatives that put it into the hands of more entrepreneurs”.

Source: Shopify 2020 earnings presentation

With the e-commerce sector still having lots of room for growth, Shopify is likely to continue doing well over the long run, pandemic or no pandemic.

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Disclaimer: The information provided by Seedly serves as an educational piece and is not intended to be personalised investment advice. ​Readers should always do their own due diligence and consider their financial goals before investing in any stock. The writer may have a vested interest in the companies mentioned.

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About Sudhan P
It isn't fair competition when only one company in the world makes Monopoly. But I love investing in monopolies. Before joining the Seedly hood, I had the chance to co-author a Singapore-themed investment book – "Invest Lah! The Average Joe's Guide To Investing" – and work at The Motley Fool Singapore as an analyst.
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