Shopify released its 2022 Q2 earnings in July 2022. Here are the key points that you don't want to miss for Shopify from this earnings!
In 2022 Q2, amidst a general e-commerce industry slowdown, Shopify’s revenue growth decelerated to 16% y/y, down from 57% a year ago or 22% a quarter ago (with it expecting continued strong headwind for its revenue in the remaining of the year).
This sunk Shopify into an operating loss of ~$0.2 billion for the quarter, and in late July, Shopify decided to lay off 10% of its employees (or ~1,000 employees) to reduce costs, as it had previously anticipated a much larger industry tailwind than what it is seeing now.
Meanwhile, it continues to invest heavily in its Shopify Fulfilment Network (SFN), spending billions in acquisitions in that space, which faces strong competition from Amazon’s Buy With Prime (launched this year).
So how should we interpret all these from an investor perspective?
In this article, we first look at some key financials below, followed by comments on its overall short term performances, long term prospects, and capital allocation issues.
Key financials
On the key financials during 2022 Q2:
Gross merchandise value (GMV) grew 11% y/y (to $46.9 billion), much lower than the 40% growth a year ago, or the 16% growth a quarter ago, due to a slowdown of the overall e-commerce industry growth (to 7% in the U.S., so Shopify was still gaining market share). Its offline GMV grew much faster (at 47%) than its online GMV (8%).
Total revenue grew 16% y/y (to $1.3 billion), with subscriptions revenue growing by 10% y/y (to $366 million), which includes a 4% point headwind from the change in app and theme revenue share model for partners implemented in 2021 Q3. Merchants solutions revenue grew faster, by 18% y/y (to $929 million), driven by increased GMV penetration of Shopify Payments, Shopify Capital and Shopify Markets.
This translates to an overall take rate of 2.8%, slightly higher than the 2.7% a year ago, due to higher adoptions of merchant solutions by the merchants.
Gross profit grew by only 6% y/y (to $656 million), with the gross profit margin (GPM) decreasing from 55% a year ago to 51% in the latest quarter, due to a higher mix of the lower-margin merchants solutions revenue. The GPM for each of the two segments also both decreased, with the GPM for subscriptions decreasing from 81% to 77%, and the GPM for merchant solutions decreasing from 45% to 40%. This is not a good sign, and Shopify attributes the decrease to “lower margins in Shopify Payments due to merchant and card mix, and increased investments in our cloud infrastructure.” We will 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 recent laying off of 10% of employees (due to over-investment) by Shopify (effective late July 2022) kicks in (noting that, the cost of revenue for subscriptions segment includes the personnel costs for operations and merchant support).
Total operating expenses grew much faster than revenue growth (of 16% y/y), by 76% (to $846 million), with all costs growing fast – R&D at 89% (to $347 million), S&M at 62% (to $327 million), and G&A at 67% (to $130 million). This huge increase mainly reflects the expansion of its R&D and S&M teams, and the step up in its international marketing efforts and offline performance marketing initiatives. About 16% of the increase in total operating expenses (of $364 million) was due to the increase in share-based compensation (SBC) expenses (of $57 million), where the SBC had risen to 11% of revenue (from 7% last year). As we have previously mentioned, as Shopify’s share price has crashed recently, it would have to give out much more share-based compensations to its employees to retain and attract them
Thus, Shopify went from an operating profit of $139 million last year Q2, to an operating loss of $190 million this year Q2.
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