Shopify released its 2022 Q3 earnings. Here are the key points that you don't want to miss for Shopify from this earnings!
In 2022 Q3, amidst the slowdown in the overall e-commerce industry, Shopify’s business continued to face a slowdown, with its GMV and revenue growth slowing down considerably compared to the past, to 11% and 22% y/y respectively. Gross profit margin continued to face pressure, while Shopify worked on its efforts to control operating expenses to improve profitability after over-hiring in the past.
Let’s look at how Shopify has performed in this latest quarter on some key financials, followed by comments on its overall business and capital allocation.
On key financials, in 2022 Q3:
Gross merchandise value (GMV) grew 11% y/y to $46.2 billion (which was slightly lower than the $46.9 billion GMV a quarter ago), and offline GMV grew much faster (at 35%) than overall GMV (11%). The overall GMV growth of 11% y/y is similar to the 11% growth a quarter ago, but much lower than the 35% growth a year ago, due to the challenging macroeconomic environment, with high inflation leading consumers to continue favoring discount retailers and reduce discretionary spend The overall e-commerce industry in the U.S. grew only 9% y/y, so Shopify was still gaining market share.
Total revenue grew 22% y/y (to $1.4 billion). Subscriptions revenue grew by only 12% y/y (to $376 million), partly affected by the headwind from the free and paid trial experiences for non-Plus plans that extend beyond Shopify’s typical 14-day free trial. Merchants solutions revenue grew much faster, at 26% y/y (to $990 million), driven by GMV growth, increasing merchant adoptions of merchants solutions (like Shopify Payments, Shopify Capital and Shopify Markets), and consolidation of the financials of Deliverr acquired in early July 2022. Excluding Deliverr, merchants solutions revenue grew by 21% y/y.
The overall take rate was 3.0%, higher than the 2.7% a year ago, mainly due to contribution from Deliverr (+0.08%), and higher adoptions of merchant solutions by the merchants (+0.18%).
Gross profit grew slower than revenue, at only 9% y/y (to $552 million), as gross profit margin (GPM) decreased from 54% a year ago (or 51% a quarter ago) to 48% in the latest quarter, due to both a higher mix of lower-margin merchants solutions revenue and a decrease in GPM for each of the two segments. On subscriptions, the GPM for subscriptions decreased from 80% a year ago to 78%, partly due to increased investments in cloud infrastructure. In the previous quarter, we mentioned that the decrease in GPM was not a good sign and we would have to see if the GPM recovers over time after the investments in cloud infrastructure are spread out over time, and after the effect of the laying off of 10% of employees (due to over-investment) effective late July 2022 kicks in. Compared to the previous quarter, the GPM for subscriptions had improved slightly, from 77% to 78%, so that’s good to see. On merchant solutions, the GPM for merchant solutions decreased from 43% a year ago (or 40% a quarter ago) to 37%, due to lower margins in Shopify Payments due to merchant and card mix shifts and industry-wide network cost increases, and the impact of Deliverr with lower margins.
Total operating expenses grew by 64% y/y, much faster than the 22% revenue growth. However, this high expenses growth has seen a slowdown from the 76% growth a quarter ago, as the company focused more on profitability, including slowing down its marketing spending and streamlining its commercial organization.
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