October 23, 2018 by Sujay Seetharaman

(We are working on a blog post for our prediction of Q1 results for 2019. Spoilers: we predicted 11.7B $)

The Shopify earnings call for Q3 2018 is a day away. SHOP has consistently beat expectations for the past four quarters. However, the SHOP stock has dropped 24% over the last 3 months due to concerns around the slowdown in sales growth.

We dug into the data to understand if (i) there is a slowdown in new merchant acquisition, which impacts recurring subscription revenue, and (ii) analyze the impact of this slowdown 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 Merchant Acquisition

After the Shopify earnings call for Q4 2017, they have stopped disclosing the number of merchants on their platform. However, various estimates say that there are at least 600,000 merchants. PipeCandy estimated Shopify’s user base by analyzing 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 are based on the above approach.

The number of merchants on Shopify 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 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 2018 could be lower than that of Q1 and Q2.

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

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 three 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 number of high-value merchants who stick around longer and contribute to more GMV.

Impact on GMV

GMV has a seasonality that mirrors the seasonality in 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 Q2 2018.

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.

In the following two years – 2016 and 2017 – Shopify enabled selling via Instagram and also expanded shipping beyond USPS, integrated with Canada Post and DHL express.

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

Given Shopify’s continued investment in Merchant Solutions, we expect more high-value merchants to come on board and contribute to GMV, which in turn will drive revenue growth and enable Shopify to meet its revenue guidance.

Having said that, increasing CAC and investments in multiple areas such as augmented reality for acquiring and retaining these customers is still a cause for concern since it impacts net losses.

Given the slowdown in merchant acquisition and GMV, the annual revenue will depend heavily on Q4.


The Shopify earnings call for Q3 is scheduled on 25th October 2018 at 8.30AM ET. Until then, we’ll leave you with a few thoughts that we’re musing aloud.

Shopify opened its new brick-and-mortar store earlier this month. This will serve as a hub for merchants where they can interact with Shopify experts and purchase all the necessary backend tools like POS systems, credit card readers, etc. Although it is too soon to say, it’s perhaps worth keeping an eye out for how this offline channel will begin to influence GMV and the number of merchants who intend to go brick-and-mortar first.

In Q3 2018, at least 1000 Cannabis & Vape and e-liquid companies came onboard Shopify. With the legalization of Cannabis, we expect many more to come on board soon. Couple that with holiday sales, we’ll get to see the revenue impact in a couple of weeks.

Want more specific insights about Shopify merchants and stores?

Sujay Seetharaman

Market Analyst @ PipeCandy

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