Shopify Slips Despite Revenue Beat

Shopify reported better-than-expected second quarter results on Wednesday, helped by strong revenue growth and price increases. The e-commerce firm saw gross merchandise volume, or the total value of orders placed through the platform, up 17% year-over-year as consumer spending remains robust.

While the e-commerce firm’s stock initially popped on the report, shares headed lower Thursday as investors raised concerns about its future. But Shopify is pretty optimistic "We're well-positioned for long term growth and the next era for entrepreneurship which is the backbone of our economy...I mean, we are really becoming the entrepreneurship company globally" says Shopify President Harley Finkelstein.

Full Video Transcript Below:

J.D. DURKIN: So we're looking at pretty solid second quarter for your company here. Revenue up over 30%, a beat on both top and bottom lines. Talk to us about some of the major highlights for the business in the last quarter, Harley.

HARLEY FINKELSTEIN: Yeah, I mean, we are laser focused on performance right now. We talked about in Q1 that we are architecting a new shape of Shopify where we have greater talent density, we execute with greater speed and agility, but also more focus on what we call our main quest, which is really building software for commerce and retail. And I think you're seeing the impact of that on our merchants, but across the business, as you mentioned, you know, revenue was $1.7 billion for the quarter, that's up 31%. GMV was $55 billion, that's up 17%. And that actually outpaces the broader U.S. market. But I think the thing that we're most excited by is that we are now earning more parts of our merchants’ businesses. They're leveraging more solutions and that is leading to our product attach rate, which measures the amount of products our merchants use from us to be above 3%.

I think the other thing that is worthwhile mentioning, just given the current climate right now in the markets, is that we also delivered our third consecutive quarter of positive free cash flow. And we gave some comments on the call yesterday that we expect free cash flow profitability for the third quarter of this year to actually be greater than the entire half of 2023. So I think this all reinforces that we're well positioned for long term growth and, you know, the next era for entrepreneurship, which, you know, as you know, is the backbone of the economy. I mean, are really becoming the entrepreneurship company globally.

J.D. DURKIN: Let me ask you about gross merchandise volume or the total value of orders placed through Shopify as a platform, up 17% year over year. Why do you think you're seeing such strong consumers and consumer spending despite a bit of shaky ground and overall economic uncertainty? Because the numbers don't lie and we see the way that people have been spending money, Harley.

HARLEY FINKELSTEIN: Yeah, well, look at this particular point, about 10% of our e-commerce in the U.S. flows through Shopify. So if you were to pretend, if you just look at our U.S. merchants and you were to aggregate their sales or GMV, we'd be the second largest online retailer in America. I say that because there is something unique about the types of brands and businesses on Shopify. These are the brands that consumers love. These are your Alo Yoga's and your Supreme’s and your Vuori’s and you know, your American girls for example, and your GymShark's. I mean the brands that we all love. You know, my favorite Black t-shirt is James Perse, the brands that we all love as consumers, they're all powered by Shopify. So we haven't seen any sort of slowdown from the U.S. consumer perspective.

What we also have noticed though, is that consumers, though more and more, are voting with their wallets to buy from brands that they want to see exist in the world. And so I think in times of uncertainty and potential, you know, with sort of this looming recession over the markets, two things happen. Businesses number one, look to ensure they have the right partners, both from software and technology that are going to future proof their business. But where the cost of, total cost of ownership is really reasonable. And you think about cost to value ratio, they want to use products that is very much on the side of value, and that's Shopify. I mean, Shopify is the best deal for what you're getting, even for the largest brands on the platform.

From the consumer side, you know, consumers, again, they want to buy direct because they don't want to pay intermediaries, they want to buy direct from the brands and they're able to do so with Shopify. So that's going really well. And, you know, just to sort of have some fun for a second, we are seeing, you know, the Barbie effect. You know, Mattel  (MAT) - Get Free Report is powered by Shopify, whether it's, you know, Mattel Creations or it's American Girl. But we've been seeing across the board, across the platform, doll sales are up 56% and play vehicles are up 70%. When you expand beyond just, you know, the Mattel Barbie effect we've seen over the last couple of months, bikes and boats are up 70% or 80%. Swimsuits and sunglasses are up 60, excuse me, 50%, and jungle gyms are up 100%. So we see the U.S. consumer being incredibly strong. But again, they're buying from brands they truly love and have a connection to.