Shopify's Return To Profitability Is Proof Of A Well-Made And Well-Executed Business Strategy

On Thursday, Shopify Inc SHOP published its third quarter results, topping both top and bottom line estimates while also uplifting its fourth quarter guidance. Upon the report, Shopify stock closed 22.3% up, with both its U.S. and Canada-listed shares surging more than 21% and hitting their highest levels since May. 

Strong Third Quarter Results

For the quarter that ended on September 30th, Shopify reported revenue grew 25% YoY as it amounted to $1.71 billion, topping the expected $1.67 billion. The total volume of merchandise sold on the platform, expressed as gross merchandise volume rose 22% to $56.2 billion, topping FactSet’s estimate of $54.2 billion. Shopify also managed to swing from last year’s Q3 loss to a net income of $718 million, or 55 cents a share as it lowered quarterly expenses almost 23%. Adjusted earnings per share amounted to 24 cents, topping the expected 14 cents. 

An Uplifting Guidance

Shopify guided for 2023 revenue growth at a mid-twenties percentage rate on a YoY basis as it expects fourth-quarter revenue growth to be in the high teens.

Shopify is joining forces with Amazon.com Inc AMZN.

With its sharpened cost focus as it reduced its workforce by 20% in May and divested its logistics operations to supply chain software startup, Spotify delivered both top and bottom-line growth. During the quarter, Shopify announced its merchants will be able to use fast and free Prime delivery from Amazon. According to analysts at Wedbush Securities, the new partnership is a positive development for both Shopify and Amazon. Shopify merchants get the chance to increase customer satisfaction and improve conversion rates as Amazon previously stated that uy with Prime increases conversions by an average of 25%. But Amazon also gets the opportunity to monetize off-platform eCommerce transactions.

At the same time, Shopify is also challenging Amazon with its AI-driven marketplace. 

Shopify launched Shop AI which allows shoppers to search all products listed on the company’s e-commerce platform. With a minimalist and clear design, it is certainly different from the busy and crowded user interface that Amazon shoppers are used to. By consolidating stores into a cohesive shopping experience, Shopify’s new creation will certainly improve Shopify’s competitiveness.

By slimming down, Shopify regrouped its efforts to focus on what it does best without sacrificing its research and development activities that key to its long-term growth. With the right AI bets and cost discipline, Shopify successfully returned to profitability.

DISCLAIMER: This content is for informational purposes only. It is not intended as investing advice.