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Stock Market Analysis

Shopify Smashes Earnings As Pandemic Boosts E-Commerce Sales

Unsurprisingly, Shopify reported an earnings beat for Q4 as demand for its e-commerce software platform and services increased in 2020. 

On Wednesday, Shopify (NYSE: SHOP) released earnings that sailed past the Street’s estimates. Businesses transitioning from physical stores to online storefronts drove up demand for Shopify’s technology during the December quarter.

Some key earnings figures:

The Canadian-based company reported the following for its Q4 earnings release: 

  • Adjusted earnings of $1.58 per share, up from $0.43 per share a year ago. Analysts had only expected earnings of $1.26 a share.
  • Revenue of $977.7 million was up 94% year-over-year (YoY), well above Wall Street’s forecast of $913.1 million.
  • Subscription service earnings jumped to $279.4 million, up 53% YoY, thanks to more merchants joining the platform. 
  • Merchant solutions revenue also grew to $698.3 million, up 117% YoY. 
  • Monthly recurring revenue from ongoing customer subscriptions came in at $82.6 million, up 53% YoY. 

Shopify Q4 earnings 

Shopify follows a long line of technology companies reporting impressive earnings as a result of the pandemic. In Shopify’s case, the company saw a tsunami wave of new clients as more businesses began selling items online when they were forced to close their physical stores. Interestingly, the company also saw more people start their own businesses during the pandemic, possibly as a result of job losses or the need for extra income. 

Shopify President Harley Finkelstein spoke of the rising trend of entrepreneurship during the pandemic on the call: 

“The spirit of entrepreneurship was strong in 2020, as our merchants’ resilience and ability to adapt helped many of them thrive in a difficult year.” 

At the end of 2020, Shopify had over 100 million registered users, including those that have opted in to use Shop Pay as well as users of the platform. Shopify helped its users set up e-commerce websites while partnering with other companies to handle payments and shipping. The firm also stated that giving free trials during the period boosted store creation on the platform.

During the fourth-quarter, Shopify registered Alipay as a payment method that allows U.S. sellers to accept payments from the more than 1 billion shoppers in China. In addition, Shopify also rolled out early access to Shop Pay Installments to certain merchants. This feature is like a ‘buy now, pay later’ service that allows merchants to offer consumers more payment choices and flexibility at checkout.

Shopify forecast for 2021

As vaccines are administered worldwide, Shopify’s revenue could slow down as the shift to digital stores should resume to a normal pace of growth. Shopify forecasts 2021 subscriptions revenue “to be driven by more merchants around the world joining the platform in a number lower than the record in 2020, but higher than any year prior to 2020.” The software company added that “we do not expect the surge in Gross Merchandising Volume (GMV) that drove merchant solutions in 2020 to repeat.” 

Due to the explosive growth seen in 2020, Shopify stock might have tougher year-over-year comparisons this year. Alongside sales and subscriber growth being more evenly distributed in 2021, the firm is also going to pump additional cash into sales, marketing, and R&D. 

The rising tide of e-commerce is one that is here to stay long after the pandemic passes. Shopify’s explanation that this growth will slow down, much like how Zoom’s will too, was to be expected after the unprecedented year we had. However, the Ottawa-based company may be presented with stiff competition after Amazon announced that it acquired Shopify’s rival Selz to boost its third-party merchant sales. This might be the biggest challenge Shopify will face in 2021 as the U.S. is a vital market for the e-commerce platform. 

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Nicole Byrne
Nicole Byrne
Nicole is a writer here at MyWallSt. Her favorite stock is Etsy because she loves its original and handmade items. She believes people are going to stop buying mass-produced items and start purchasing ‘one of a kind’ fashions and furnishings. In a world of sameness, Etsy has the advantage.