A Canadian-based software platform for creating and running online stores has reached the 1 million milestone as Shopify SHOP now officially has that many businesses using its services. Although its contribution to a wider picture of economic activity is still pale comparing to the online retail leader Amazon.com, Inc. AMZN which is responsible for about half of e-commerce sales in the US, there are still many aspects where this Ontario-based company gives Amazon a run for its money.
Shopify Vs. Amazon
Shopify generated $183 billion from 2016 to 2018 whereas Amazon undertook $207 billion worth of retail operations in 2018 alone. Shopify has devoted itself to develop tools that make it even easier for users to enjoy its platform. And while Amazon is a reunion of many brands and products, Shopify is proud to allow entrepreneurs "brand" their own stores on the platform.
The company is overall implying that it is a "fairer" version of Amazon due to allowing businesses to control their own pricing, messaging and even the supply chain. And everyone is familiar, not to say frustrated, with Amazon's monopolistic practices.
Recovering After Third Quarter‘s Disappointing Loss
The company did post a surprise loss on October 29th, but they did spend 1 billion to set up their own AI fulfilment network as the company is deliberately increasing spending to expand its customer base. The shares tumbled mostly because analysts expected a profit of 10 cents but ended up with an adjusted loss of 29 cents. But the company also suffered a hit with a one-time tax provision of $48.3 million due to its international expansion efforts. And no one seemed to acknowledge the fact that revenue of $390.5 million exceeded analyst expectations of 383.7 million, indicating revenue growth of 45% from the comparable quarter last year.
So, the world's second greatest online merchant seems to be on track despite these mild headwinds as it increased its fourth quarter projections. Revenue is expected to be in the range of $472 million to $482 million with full year sales being upgraded from $1.51 billion to $1.53 billion up to range of $1.54 billion to $1.55 billion. The forecast is in line with Wall Street estimates. Therefore, despite the clouds, there is no storm on the horizon as the company continues to see great interest from merchants to join its network, further fuelling its robust revenue growth. But it needs to control its rapidly increasing operating expenses that weighted on its profitability.
Outlook
Shopify can be proud of the massive growth it exhibited over the course of the last five years. Despite still being a mild shadow of Amazon in the thriving massive industry of online retail valued at $3.5 trillion (according to Statista), Shopify carries a very strong message. It is making case for all those small businesses, encouraging them that they don't need to agree to the terms posed by the e-commerce giant.
In other words, Shopify is telling small business they don't need to sell on Amazon in order to survive in the competitive world! And before Shopify entered the picture, this was the only way. With Nike Inc NKE deciding to leave Amazon, many prominent brands are likely to do the same and invest in their own e-commerce framework unless Amazon does something about it- starting with protecting consumers from counterfeit products. Overall, all good news for Spotify that has even Tesla Inc.'s TSLA support. Analysts project that the company will grow its top line by 35% comparing to 2019 figures, reaching more than US$2.1 billion next year.
If this forecast comes true, that sort of growth will be hard to find anywhere else as this seems like a business model that is very unlikely to be disrupted.
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