Shopify has carved out a big niche in e-commerce by providing the platform necessary for retailers to bring their businesses online.
The company’s roots stretch back to founder Tobias Lutke’s frustration when he attempted to sell skateboards online. He felt there had to be a better way to build a retail business, so he went out and created it.
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Unlike Amazon, which sells everything from A to Z both directly and via third-party sellers on its marketplace, Shopify offers retailers a decentralized platform to build their businesses. It includes tools for websites, accounting, and inventory management, plus the ability to sell on multiple channels, including Amazon, eBay, and social media.
Its agnostic approach to e-commerce has translated into rapid growth this year, despite ongoing consumer belt-tightening due to inflation and a wobbly jobs market.
Shopify CEO Tobias Lutke is enjoying strong sales growth thanks to the rise of online shopping.
Shopify demand sparks envy-inspiring sales growth
Shopify’s edge is that it offers retailers a relatively easy way to get up and running quickly across multiple online retailers, including eBay and Amazon, without getting bogged down in administrative tasks.
Merchants can leverage Shopify (SHOP) to manage inventory across e-commerce and brick-and-mortar stores via plug-ins, reducing headaches.
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Shopify’s payment processing services, shipping integration, and cash advances simplify sales and improve merchant cash flow while content tools and analytics help retailers better serve customers.
In return, Shopify pockets fees, including monthly subscriptions that range from $29 for basic services to up to $2,300 for big enterprises that require heavy lifting. It also makes a percentage of any credit card sales when merchants use Shopify Payments.
Altogether, those fees really add up.
Shopify’s second-quarter earnings revealed revenue grew 31% to $2.68 billion, about $130 million more than expected. That translated into net income of $338 million, excluding tailwinds from investments. Including those investments, net income was $906 million.
Earnings per share, or EPS, grew 35% to $0.35.
Shopify’s secret weapon? Artificial intelligence
Shopify’s merchants are winning with consumers. Last quarter, Shopify’s gross merchandise value was $87.8 billion, up 31%, while Amazon’s North American retail sales rose 11% to $100 billion.
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Management believes investments in AI will help that strength continue. Shopify is targeting third-quarter revenue growth at a mid-to-high twenties percentage rate compared to one year ago.
A lot of its growth stems from efforts to push more deeply into offline and business-to-business sales – something Shopify President Harley Finkelstein referred to on Shopify’s earnings conference call would create “a truly unified commerce offering.”
It’s also because Shopify has a knack for capitalizing on consumer trends, the latest of which is artificial intelligence.
“We’ve consistently proven to be experts in anticipating where consumers will be showing up next and building accordingly,” said Finkelstein. “We’ve built a suite of products that make it easy for AI platforms to bring shopping to their agents from discovery to checkout.”
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Its AI agents can quickly search across its product catalog, and its newly launched Checkout Kit can be embedded directly within chats with AI agents, allowing shoppers to buy right from the chat.
AI tools are also being rolled out to help merchants, including Sidekick, a data-crunching AI tool that can draw insights from merchant data in seconds that could otherwise take hours. Its AI store builder can create a custom online store in seconds too, from a single phrase.
“Now all you need is an idea and a description of the product you want to sell like stylish athleisure apparel for women, and Shopify will do the rest,” said Finkelstein.
The new AI agents could give it yet another leg up, helping it drive even greater sales and profit growth in the future.
Investors seem to agree. Shopify’s stock price surged after the earnings release, jumping 22% on August 6.
Todd Campbell owns Shopify shares.
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