Shopify
Shopify provides the leading cloud-based, multi-channel commerce platform designed for small and medium-sized businesses. Merchants use its software to run their business across all of their sales channels, including web and mobile storefronts, physical retail locations, social media storefronts, and marketplaces. As the number of channels over which merchants transact continues to expand, the importance of a multi-channel platform that is both fully integrated and easy to use increases. The Shopify platform provides merchants with a single view of their business and customers across all of their sales channels and enables them to manage products and inventory, process orders and payments, ship orders, build customer relationships and leverage analytics and reporting all from one integrated back office.
Commerce transacted over mobile devices continues to grow more rapidly than desktop transactions. For several years Shopify has focused on enabling mobile commerce and its merchants are now able to offer their customers the ability to quickly and securely check out by using Apple Pay, and in the future Android Pay, on the web. Using Shopify Mobile, merchants have the ability to set-up, track, and manage their business on the go.
The Shopify platform has been engineered to enterprise-level standards and functionality while being designed for simplicity and ease-of-use. Shopify has also designed its platform with a robust technical infrastructure able to manage large spikes in traffic and with an app ecosystem to integrate additional functionality. Shopify is constantly innovating and enhancing its platform, with its continuously deployed, multi-tenant architecture ensuring all of its merchants are always using the latest technology.
A rich ecosystem of app developers, theme designers and other partners has evolved around the Shopify platform. With approximately 11,000 active partners referring merchants over the last year, Shopify has built a strong, symbiotic relationship with its partners that continues to grow. The company believe this ecosystem has grown in part due to the platform’s functionality, which is highly extensible and can be expanded through its application program interface ("API") and the approximately 1,400 apps available in the Shopify App Store. This ecosystem helps drive the growth of its merchant base, which in turn further accelerates growth of the ecosystem.
The company's mission is to make commerce better for everyone, and the company believe the company can help merchants of nearly all sizes and retail verticals realize their potential. While its platform can scale to meet the needs of larger merchants, the company focus on selling to SMBs. As of December 31, 2016, the company had more than 377,500 merchants from approximately 175 countries using its platform. Most of its merchants are on subscription plans that cost less than $50 per month, which is in line with its focus of providing cost effective solutions for early stage businesses. In the year ended December 31, 2016, its platform processed Gross Merchandise Volume ("GMV") of $15.4 billion, representing an increase of 99.5% from the year ended December 31, 2015.
The company's business has experienced rapid growth. During the year ended December 31, 2016 its total revenue was $389.3 million, an increase of 89.7% versus the year ended December 31, 2015. The company's business model has two revenue streams: a recurring subscription component the company call subscription solutions and a merchant success-based component the company call merchant solutions.
In the year ended December 31, 2016, subscription solutions revenues accounted for 48.4% of its total revenues (54.6% in the year ended December 31, 2015). The company offer a range of plans that increase in price depending on additional features and economic considerations. The company's highest-end plan, Shopify Plus, has grown rapidly since its launch in November 2014. Offered at a starting rate that is several times that of its Shopify Advanced plan, Shopify Plus caters to merchants with higher-volume sales and offers additional functionality, scalability and support requirements, including a dedicated Merchant Success Manager. Tesla, Nestle, GE, Red Bull and Kylie Cosmetics are among the approximately 2,500 Shopify Plus merchants seeking a reliable, cost-effective and scalable commerce solution. The flexibility of its pricing plans is designed to help its merchants grow in a cost-effective manner and to provide more advanced features and support as their business needs evolve.
Revenue from subscription solutions is generated through the sale of subscriptions to its platform as well as from the sale of themes, apps and the registration of domain names. The company's merchants typically enter into monthly subscription agreements. As described in the "Key Components of Results of Operations," the revenue from these agreements is recognized ratably over the relative period and therefore Shopify has deferred revenue on its balance sheet. The company do not consider this deferred revenue balance to be a good indicator of future revenue. Instead, the company believe Monthly Recurring Revenue ("MRR") is most closely correlated with the long-term value of its merchant relationships. Subscription solutions revenues increased from $112.0 million in the year ended December 31, 2015 to $188.6 million in the year ended December 31, 2016, representing an increase of 68.4%. As of December 31, 2016, MRR totaled $18.5 million, representing an increase of 62.9% relative to MRR at December 31, 2015. A detailed description of this metric is presented below in the section entitled, “Key Performance Indicators.”
The company offer a variety of merchant solutions that are designed to add value to its merchants and augment its subscription solutions. During the year ended December 31, 2016, merchant solutions revenues accounted for 51.6% of total revenues (45.4% in the year ended December 31, 2015). The company principally generate merchant solutions revenues from payment processing fees from Shopify Payments. Shopify Payments is a fully integrated payment processing service that allows its merchants to accept and process payment cards online and offline. Beginning with the launch of Shopify Payments in 2013, Shopify has seen significant growth in the revenues generated from its merchant solutions. In addition to payment processing fees from Shopify Payments, the company also generate merchant solutions revenue from transaction fees, Shopify Shipping, Shopify Capital, referral fees from partners, and sales of point-of-sale ("POS") hardware. The company's merchant solutions revenues are directionally correlated with the level of GMV that its merchants process through its platform. Merchant solutions revenues increased from $93.3 million in the year ended December 31, 2015, to $200.7 million in the year ended December 31, 2016, representing an increase of 115.2%.
The company's business model is driven by its ability to attract new merchants, retain existing merchants and increase sales to both new and existing merchants. The total number of merchants using its platform grew from more than 243,000 as of December 31, 2015 to more than 377,500 as of December 31, 2016. As at December 31, 2016, its merchants were geographically dispersed as follows: United States of America, 58%; United Kingdom, 10%; Canada, 7%; Australia, 7%; and the rest of the world, which represents approximately 175 countries, 18%. The company's merchants represent a wide array of retail verticals and business sizes and no single merchant has ever represented more than five percent of its total revenues in a single reporting period. The company believe that its future success is dependent on many factors, including its ability to expand its merchant base, retain merchants as they grow their businesses on its platform, offer more sales channels that can connect to the platform, develop new solutions to extend the functionality of its platform, enhance its ecosystem and partner programs, provide a high level of merchant service and support, and hire, retain and motivate qualified personnel. As of December 31, 2016, Shopify had more than 1,900 employees and consultants.
Shopify has focused on rapidly growing its business and plan to continue making investments to drive future growth. The company believe that its investments will increase its revenue base, improve the retention of this base and strengthen its ability to increase sales to its merchants. If Shopify is unable to achieve its revenue growth objectives, the company may not be able to achieve profitability.
