June 19, 2019 by Sujay Seetharaman

Shopify earnings for Q1 2019 were announced on April 30th, 2019. SHOP stock has consistently beat expectations through all four quarters in 2018 despite a brief drop in the Shopify stock price by 24% in Q3 2018 owing to a slowdown and concerns around sales growth. In the first 5 months of 2019, however, SHOP stock has risen by a whopping 137%.

We dug into the data to understand

(i) how Shopify merchant acquisition is trending which impacts recurring subscription revenue, and

(ii) analyze the impact of Shopify merchant acquisition trends on GMV, which directly impacts the ‘merchant solutions’ revenue.

In outlining the impact of these trends on the Shopify earnings call, we have combined our own proprietary data along with data from publicly available Shopify reports.

A slowdown in Shopify Merchant Acquisition

After the earnings call for Q4 2017, Shopify has stopped disclosing the number of merchants on its platform. However, various estimates say that there are at least 700,000 Shopify merchants. PipeCandy estimated Shopify’s user base by analyzing hundreds of thousands of eCommerce companies using Shopify, tracking them from when they started using Shopify and built a bottom-up estimate for such websites each quarter.

The number of merchants according to SHOP reports (in the table below) follows the historical trend while PipeCandy’s estimates (also in table below) are based on the approach mentioned above.


The number of Shopify merchants has been increasing every quarter. There is a consistent seasonality to the growth; higher growth during the holiday season followed by a dip in Q1. (graph below)


However, we believe there is a general slowdown in the growth of the number of Shopify merchants since Q1 2018 and the YoY growth is definitely diverging from the usual trend. Per our analysis, we suspect the YoY growth rate for Q3 2019 could be lower than that of Q1 and Q2.

While there is an overall slowdown in the growth rate of Shopify merchants, we noticed that the number of high-value customers is also increasing. (See Shopify’s merchant mix below)Shopify-merchants-user-age

We split the merchant base into three buckets – New, Budding and Mature Users – based on the age of their storefronts and analyzed their growth rate over the last four years and found that churn is increasing among the lower-value merchants while the acquisition of high-value merchants is increasing in parallel.

Therefore, the growth in Subscription Solutions revenue, driven primarily by MRR can be attributed to the increasing acquisition of high-value merchants who stick around longer and contribute to more GMV.

Want specific insights about Shopify stores from around the world?

Impact on GMVFma

Shopify GMV has a seasonality that mirrors the seasonality in Shopify merchants. Every year, the GMV peaks during Q4 and drops during the following Q1 with a slight uptick in Q2. Q3 is usually the leanest period after Q1.

There has been a general slowdown in the GMV growth as well, from the high hundreds to below 80% in 2018 to about 50% in Q1 this year.

2015 saw 25% of Shopify merchants enable social media selling. Shopify was also selected as the preferred migration partner by Amazon. This marked the beginning of a spike in Shopify’s GMV.

2016 and 2017 saw Shopify enable selling via Instagram and also expand shipping beyond USPS, integrating with Canada Post and DHL express.

In 2018, Shopify enabled multi-location inventory, allowing merchants to track inventory across multiple sales and storage facilities and launched a Services Marketplace – a job-centric hub where merchants can find Shopify partners.

These investments have continued to boost GMV and Merchant Solutions revenue, which is why the impact of churn hasn’t been severe.

Later in 2018, Shopify stirred up rumors about an entry into the consumer goods marketplace through its acquisition of Tictail, a Swedish eCommerce marketplace. Strangely, neither Tictail nor Shopify have any publicly-facing information about the acquisition.

Given Shopify’s continued investment in Merchant Solutions, we expect more high-value merchants to come on board and contribute to GMV, and this is already happening. Q4 2018 saw the merchant base of Shopify Plus grow by 50%. Q1 2019 recorded 26% of Shopify’s MRR from Plus merchants, up from 22% a year ago.

Given the overall slowdown in merchant acquisition and GMV, the annual revenue will, like the previous years, depend heavily on Q4. Shopify investors continue to remain bullish on SHOP – which is currently trading at $307 per share at the time of writing – calling it a business with a bright long-term future.

An impending purge of sellers on vendor central by Amazon might probably bring a spike in the number of merchants and GMV on Shopify, although this remains to be seen. Amazon is reportedly looking to cut costs and focus wholesale purchasing on major brands like Procter & Gamble, Sony, and Lego, and push mom-and-pop stores to seller central. Amazon isn’t known to be gracious with lead times, which may leave these brands scrambling to get their direct selling strategy right and Shopify might just come as the savior.

As for guidance, management is calling for 2019 revenue to rise between 38% and 40% year over year.

Conclusion: The MailChimp episode

The highlight of Q1, we’d say, was Shopify’s breakup with MailChimp over differences in the way the two companies approached sharing customer data.

Out of sheer curiosity to find out what was happening, we put our heads together and dug deeper into our dataset and the internet.

The underlying context of the two companies parting ways, in our opinion, is not about customer data privacy or even who owns the customer. It’s about who has a better stake in the future of commerce.

To understand why Shopify is paranoid about MailChimp, we have to understand how big offline retail is for Shopify. Shopify has over 100,000 merchants using its ‘Point of Sale’ systems, giving it a revenue of $210M in Q4 2018 (as against $133M that it earned from online merchant subscriptions). So, Shopify is more of a POS company than an online platform. Compare that with Square, which has more than 2 million merchants that use the Square POS and you’d see that Shopify is small fry.

It gets more interesting when you see how big MailChimp is in eCommerce. Based on PipeCandy’s internal data on Shopify, we believe that there might be about 100,000 merchants using MailChimp. But that’s far less than the 800,000 merchants that Shopify claims. But if you look at the GMV of the eCommerce revenue cleared by MailChimp’s customer base (as per MailChimp), it was more than $22B in the first half of 2018. Considering the fact that H2 is when the holidays were, we estimate that the GMV for the full year could have been more than $44B, which is bigger than the Shopify economy’s GMV, which stood at $41B in 2018.

Square gets access to 100,000 online merchants through the relationship with MailChimp but what MailChimp gets is the access to over 2 million offline merchants that will eventually go online. Less than 15% of US Retail is eCommerce. Whoever has a larger retail merchant base will also get to own the eCommerce merchant base. The future of eCommerce dominance is a war that is waged offline. Right now, it is MailChimp that is on an offensive. With MailChimp making its intentions very clear by expanding its scope from email list manager to marketing automation suite and now online storefronts, Shopify doesn’t have much of a choice! The real war is for the future of commerce.

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Sujay Seetharaman

Market Analyst @ PipeCandy

Currently donning the Researcher's hat. Talks to himself.