- Stock Market Nerd
- Posts
- Mid-Week News
Mid-Week News
Shopify; Celsius; Starbucks; Airbnb; MercadoLibre; Nvidia
Brad Freeman
September 11, 2024 • Estimated Reading Time: 7 minutes
Table of Contents
The Goldman conference is always busy. I’ve already sent coverage of the PayPal, Amazon and SoFI interviews. I plan to cover several more for Saturday. There are 15 left that I’d like to get to (Alphabet, Cloudflare, Visa etc.), along with Oracle and Adobe earnings and the rest of this week’s news. Realistically, some of the 13 will be pushed to next week.
1. Shopify (SHOP) – CFO Interview with Goldman
Take Rates:
Shopify has consistently grown its take rate for the last few years through the successful introduction of more merchant solutions. These solutions (payments, cross-border, marketing, credit, tax etc.) round out the Shopify product suite to ensure customers have everything they need in one place. It then partners with important industry players (like Amazon on fulfillment) to plug any remaining product gaps.
Note that the trend would be even more positive excluding its sale of the Shopify Fulfillment Network (SFN).
The two largest opportunities for Shopify to grow attach rate from here are in global expansion and large enterprise adoption. For its more established small and medium business (SMB) segment, there is still plenty of room for take rate gains, just not quite as much.
Shopify’s aggressive enterprise push, with Shopify Plus upgrades, Commerce Components by Shopify (CCS) and headless (back and front end separation), is really only two years in. Sales cycles take about 9 months and onboarding cycles take another 9 months. Shopify’s new clients usually start with fewer products and add more from there. All of this means the growth contribution from larger enterprises should begin to ramp starting now. Very early here. On the international side, take rate gains will be driven by debuting more of its products in more geographies. Most of its current markets do not have the full suite available. Getting closer to that point will naturally propel take rate higher.
These two items, as well as future inevitable product launches, bode well for 3.03% being a positive step in a longer, beneficial journey. Why does this matter? It means revenue growth can continue to lead volume growth in the years ahead as its overall opportunity continues to mature; Shopify can extract more financial value from the existing business. Furthermore, considering take rate is tightly related to pace of cross-selling, as take rate rises, Shopify’s margin ceiling does too. It costs far more for it to onboard its first product with a new merchant than any incremental product thereafter.
System Integrator (SI) Allies:
Large companies generally work with SIs like Accenture and EY when embarking on large overhauls of their technology stacks. Shopify hadn’t done much with SIs for years. It relied on word-of-mouth and perhaps was a bit too proud to embrace this channel. That has since completely changed. SIs are now an instrumental part of its growth engine and a vital cog in its ability to grow awareness and purchase consideration as the largest companies in the world select vendors.
During the interview, Hoffmeister told us that when Shopify started its 2022 enterprise push, “the pace at which basically all big SIs pivoted to it was really impressive.” It works with all of these big players, with one having 2x the number of its own employees trained on Shopify than Shopify has on its own. These SIs, based on the data Hoffmeister continues to observe, are advocating for Shopify’s suite as the best tech platform out there.
Approach to AI:
Shopify is not currently interested in monetizing AI as a separate, standalone package. Instead, the company is fixated on ingraining AI as deeply into its current suite as possible.
This is generally the approach the company takes to new product offerings like Managed Markets (for cross-border) and others. It takes its time in driving product-market fit and value creation. Then and only then does it monetize via more merchant solutions or subscription price hikes. AI is following the same pattern for Shopify. For now, the value creation focus is on nudging merchants to best course of action for various tasks. It’s also about using world-class models to automate marketing content creation, customer service, custom pricing, web design and so much more. Shopify’s AI suite (called Shopify Magic) is not meant to run a business for a merchant. It’s meant to offer data-driven ideas on how to optimize every aspect of their business.
Macro:
Shopify’s macro view has not changed since the Q2 earnings call. It’s not seeing consumer spending or the overall environment improve or worsen. Its continued financial outperformance is not a byproduct of an easier backdrop, but structural market share gains. Its product suite, go-to-market, geographic diversity and team are all facilitating relative resilience vs. everyone else in its space. More of the same for Shopify.
Marketing Changes:
Shopify has gotten significantly more intentional, sophisticated and precise with marketing since Hoffmeister took over two years ago. It now can track key performance indicators (KPIs) in real-time to lean into or away from channels as performance evolves on a daily basis. That has unlocked significantly more opportunities to invest in high-return marketing channels and has made Shopify more efficient from a lifetime value to customer acquisition cost (CAC) perspective. This is a testament to the systems that Shopify created to support this capability, and is broadly expected to lead to accelerating merchant gains in 2024, with revenue contributions ramping in 2025.
Hoffmeister also said he’s seeing the pattern of adding more merchants continue, partially thanks to better marketing. This points to last quarter’s fantastic new merchant result not being a one-off event. That’s especially important and positive considering its decision to shorten free trials during Q2 propped up new merchant adds for that period.
This improved tech does mean Shopify will invest more than expected in marketing if returns warrant that decision from time to time. Still, there’s a reason why it guides to OpEx as a % of revenue (as Hoffmeister said). That’s Shopify communicating its commitment to ensure it maintains spend discipline.
Reply