Shopify to accelerate fulfilment rollout on strong demand, shares up on results

TORONTO—Shopify Inc. said Thursday it has had a better-than-expected response for its proposed technology-enabled logistics network as it pushes to offer merchants a more complete alternative to online retail giant Amazon.

The Ottawa-based e-commerce logistics company beat earnings expectations in its second quarter, as revenue jumped 48% from the comparable quarter in 2018 to reach US$361.9 million. It said it will accelerate the US$1 billion in spending it has committed to its new U.S. fulfilment network—which manages distribution, warehouses and logistics—due to a positive market response.

“We’ve received a ton of interest from merchants and partners,” chief operating officer Harley Finkelstein said on a conference call Thursday.

“We think we can provide this fulfilment network to provide lower costs, to allow merchants to keep their brand, and allow them to have a much smoother business.”

The network, announced by the company at its annual conference in June, is designed to give merchants a better shipping option than competitors, in part by giving merchants control of their box branding, as well as of their data.

The company, which started as an online platform for e-commerce businesses to sell their wares, has been rapidly expanding into other aspects of retail, including payments, marketing and logistics in the competitive world of online retail. It has more than 820,000 merchants as customers, including Johnson & Johnson and Nestle.

Company CEO Tobi Lutke said Shopify, unlike some unnamed competitors, is committed to using client data to help merchants.

“We see this in the history of retail a lot, where large vendors go and create retail brands or in-house brands based on the insights that they are only marginally entitled to, and this is just not the right move for a platform such as us,” said Lutke on the conference call.

“There’s really really strong principles at this company, like, which are around, that the data is the merchant’s and we use it for their benefit.”

Last month, the European Union said it is investigating whether Amazon uses data from independent retailers to gain an unfair advantage, a decision that could lead to changes in how the internet’s biggest marketplace works.

In addition to selling its own products, Amazon allows third-party retailers to sell their goods through its site. Last year, more than half of the items sold on Amazon worldwide were from third-party sellers.

In doing so, Amazon collects data about activity on its platform that, the EU says, it might be able to use to favour its own products for sale. In particular, the EU will look at how Amazon determines which trader is selected as the default seller of an item that a customer wants to buy.

Shopify, meanwhile, is positioning itself on the same side as merchants as scrutiny grows around the practices and potential abuses of power of major tech companies like Google, Apple, Facebook and Amazon.

Lutke said he welcomed the increased debate on the issue.

“I think it’s a very, very healthy debate for every country, society to just, you know, at least meditate on how the largest companies fit into society and what roles they should play.”

Shopify’s big push toward ramping up its fulfilment centres comes as it continues to add clients and improve financials.

The company increased its revenue outlook for the year to between US$1.51 billion and US$1.53 billion, up from the US$1.48 billion to US$1.5 billion it had said last quarter.

Shopify, which reports in U.S. dollars, also beat analyst expectations with its latest results that showed adjusted net income of $15.8 million, or 14 cents per share, compared with a consensus of $3.4 million, or three cents per share, according to financial markets data firm Refinitiv.

The results helped push the company’s share up 7.7% to $451.77 in afternoon trading on the Toronto Stock Exchange.