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On the evening of August 7th, Beijing time, before the U.S. stock market opened, Shopify, the leading independent e-commerce company in the United States, announced its second quarter 2024 financial report. Overall, the core operating indicators of the payment and subscription businesses were better than expected, among which the subscription business performed even stronger, and the exaggerated cost control helped the company squeeze out profits that far exceeded expectations.，This is an outstanding achievement, the details of which are as follows:

1、In terms of core operating indicators, this quarterGross merchandise volume (GMV) of the Shopify ecosystem$67.2 billion,A year-on-year increase of 22.2%, a steady growth rate，Approximately $1.5 billion (2.2%) more than expected.is $41.1 billion,1.1 billion higher than expected (+2.9%)，Year-on-year growth of 29.7%.Shopify’s own payment channel penetration rateThe month-on-month growth rate increased from 59.5% to 61.2%, slightly higher than the expected 60.8%.

MRR (monthly recurring revenue), which reflects the subscription business, was $169 million per month this quarter, a year-on-year increase of 21.6%, significantly higher than the expected $159 million, and the most unexpected point in this quarter's financial report.inPlus merchants’ MRR increased by 29% year-on-year.The growth rate of MRR for non-Plus merchants was only 18.6%.Strong growth in subscription services was driven by Plus merchants.

2、In terms of revenue,Merchant Services Revenue This Quarter1.48 billion,It increased by 18.6% year-on-year, slightly lower than GMV and GPV.Did not outperform market expectations。mainlyThe monetization rate of merchant service revenue (as a percentage of GMV) decreased by 7bps year-on-year to 2.21%.We believeThe decline in merchant service monetization rate is a logical consequence of the increase in the proportion of Plus merchants。

Subscription service revenue was consistent with the strong growth in MRR indicators, with revenue increasing 26.8% year-over-year and 5.6% higher than expected.

3、From a gross profit perspective,The gross profit margin of subscription services also increased by 1.4 percentage points month-on-month to 82.8%.Not only the revenue growth is stronger, but the gross profit margin is also improved,The gross profit margin exceeded expectations by 6.4%.The merchant services businessMonetization rate has declined，The gross profit margin also decreased slightly by 0.3pct month-on-month.lead toGross profit from merchant services$579 million, which was slightly lower than expected by 1.4%.

4、From a cost perspective, this quarterShopify's significantly lower-than-expected expense expenditures were a significant contributor to profit release. Total operating expenses totaled approximately $800 million, a full $100 million lower than market expectations.(-11.9%). Among them, marketing expenses were 30 million less than expected.Administrative expenses were halved year-on-year, with expenditures totaling only $0.6 billion. This item alone was about $0.7 billion lower than expected.

5、The total gross profit was about 20 million more than expected, and the excellent operating expense control squeezed out about 100 million in profits. This made the company's core operating profit increase by nearly 140 million quarter-on-quarter, doubling. The company's more concerned free cash profit was 330 million this quarter, which also increased by about 100 million quarter-on-quarter, about 90 million more than expected.

Dolphin Investment Research Viewpoint:

Judging from the performance of this quarter, the operating indicators of both the subscription and merchant service businesses have outperformed expectations. Although the revenue-to-earnings ratio has slightly narrowed due to the decline in monetization rate, the revenue and gross profit indicators are still good overall, driven by the stronger subscription business. Under the exaggerated cost reduction, the squeezed-out incremental profits have doubled the operating profit under GAAP (although there is also a low profit base). But obviously, the performance of growth, cost control, and profit is undoubtedly good.

Looking ahead to the next quarter, the company is guiding for revenue growth of around 20% to 25% (20.7% this quarter), while expecting expenses to account for only 41% to 42% of revenue, significantly lower than the market expectation of 44.4%. In other words, the high growth and profit margin improvement will continue in the next quarter.

From a valuation perspective, the company's current P/S valuation is in the high single digits, and the P/E valuation is in the high teens, so it is difficult to objectively judge whether it is undervalued or overvalued. The subsequent stock price trend can only be judged from the trend of marginal changes in performance.

The following is a detailed interpretation of this quarter's financial report:

1. Subscription and payment operating indicators both outperformed expectations

As usual, we start with the operating indicators that best reflect the real situation.Gross merchandise volume (GMV) of the Shopify ecosystem$67.2 billion,A year-on-year increase of 22.2%, a steady growth rate. Actual GMVThis was approximately $1.5 billion (2.2%) more than expected.

Total payment amount completed via Shopify paymentis $41.1 billion,1.1 billion higher than expected (+2.9%)，Year-on-year growth of 29.7%.The growth rate of payment amount is higher than that of sales.The proportion of Shopify's completed payments in total GMV is rising, from 59.5% to 61.2% month-on-month, slightly higher than the expected 60.8%.Because Shopify can generate more revenue through payments, higher payment penetration is conducive to the growth of the company's merchant service revenue.

The MRR (monthly recurring revenue), an indicator that reflects the status of the subscription business, was $169 million per month this quarter, a year-on-year increase of 21.6%.(This can be roughly understood as the monthly subscription fees that Shopify collects from merchants reaching 169 million).Significantly higher than the expected $159 million.It can be said,Subscription revenue was the biggest improvement in the business this quarter.inPlus merchants’ MRR increased by 29% year-on-year.The growth rate of MRR for non-Plus merchants was only 18.6%, which was lower than the overall growth.Strong growth in subscription services was driven by Plus merchants.

2. The slight decline in monetization rate slightly dragged down merchant service revenue, while subscription services became stronger

In terms of revenue,Merchant Services Revenue This Quarter1.48 billion,The year-on-year growth rate was 18.6%, which did not outperform the growth rates of GMV and GPV.It did not significantly outperform market expectations.。The reason behind this isThe monetization rate of merchant service revenue (as a percentage of GMV) decreased by 7bps year-on-year to 2.21%.Combined with Plus merchant MRR outperforming the overall growth, we believeThe decline in merchant service monetization rate is a logical consequence of the increase in the proportion of large merchants with stronger premium capabilities.。

andThe trend of subscription service revenue is closely aligned with the MRR metric.This SeasonRevenue increased by 26.8% year-on-year, 5.6% higher than expected. From a revenue perspective, subscription revenue also performed more strongly.

Mainly due to strong subscription revenue, Shopify's total revenue for the quarter was 2.045 billion, up 20.7% year-on-year and slightly higher than expected by 1.7%.

3. Merchant service gross profit slightly decreased, while subscription service gross profit increased

From a gross profit perspective,Subscription ServicesNot only did revenue growth exceed expectations,Gross profit margin also increased by 1.4 percentage points month-on-month to 82.8%.After the increase in profit margins,The gross profit margin exceeded expectations by 6.4%.

In contrast,becauseMerchant ServicesThe monetization rate declined both year-on-year and month-on-month.,thereforeThe gross profit margin of merchant services decreased slightly by 0.3pct quarter-on-quarter this quarter.This also leads toGross profit from merchant services$579 million, which was slightly lower than expected by 1.4%.

Adding two businesses,Total gross profitStill higher than expected by 2.1%.The revenue of $1.05 billion was about $0.2 billion more than expected, up 25.1% year-on-year, still outperforming the 20.7% growth rate of total revenue.

4. Cutting management expenses is the biggest contributor to incremental profits

From a cost perspective, this quarterShopify's significantly lower-than-expected expense spending was an even more significant contributor to profit release.SpecificallyTotal operating expenses for the quarter were approximately $800 million, which was approximately $100 million less than market expectations.(-11.9%). All four operating expenses were lower than expected, with marketing expenses being 30 million less than expected.Administrative expenses were more than halved year-on-year to only 60 million yuan, which was about 70 million yuan less than expected.Even without considering the expected difference, the proportion of the four operating expenses to revenue also decreased month-on-month.

However, the performance disclosure did not explain why management expenses fell so sharply. We can wait and see whether there is an explanation in the conference call.

5. With increased revenue and controlled expenses, operating profit doubled

Mainly due to stronger-than-expected subscription revenue, the company's total gross profit this quarter was about 20 million more than expected, and operating expense control squeezed out about 100 million more profit than expected. As a result, the company's core operating profit increased by nearly 140 million quarter-on-quarter this quarter, doubling quarter-on-quarter.

As for the free cash profit that the company is more concerned about, it was 330 million this quarter, an increase of about 100 million from the previous quarter, and about 90 million higher than the market expectation of 245 million. Although the excess margin was not as large as the GAAP operating profit, it undoubtedly significantly outperformed expectations.

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Dolphin Research’s past research on Shopify:

depth:

First covered on January 19, 2024. The first article "Shopify: Looks like "Taobao", but is actually "Alipay""

The second article "Shopify: With the shell of Youzan and the core of payment, how can it grow so freely?" was first covered on May 29, 2024.

The third article, "The core of "Alipay", the valuation of SaaS, is Shopify expensive?", was first covered on June 20, 2024.