Shopify Financial Analysis

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Profitability Enhancement:

Shopify has intention to increase the investment in Research & Development (R&D) to grow its business. We believe the R&D investments will improve the gross margin by reducing the costs. The R&D can enhance the efficiency and capacity of cloud service for its platform and lead to cost saving for Subscription and Merchant solutions. Increasing GMV in shopify platform will strength shopify’s bargaining power with Merchant solution partners, such as USPS for shipping channel. Thus, the gross margin of Merchant solution is expected to preserve at 28% and gradually improve to 35% in the future. The gross margin of Subscription solution will be around 80% in next three years and stabilize at 82% moving forward. We believe that Shopify can benefit from the economies of scale with a lower cost and higher gross margin.

Liquidity Challenge:

With a lot of growth opportunities, Shopify is going to expand its business in recent years. For example, Shopify can launch shopify capital once they found it could extend the functionality of its platform. The company also wants to invest into the payment and shipping channels under Merchant solution. All these expansions require Shopify to spend a lot. The company can withdraw the funds from its current assets such as cash and cash equivalents and marketable securities. Therefore the current ratio is expected to be lower in the near future. However, the 2016 current ratio is higher because of the fundraising from the new share issuance in quarter three. After 2016, it is expected to keep decreasing, which is projected to be 3.44 in 2017 and 2.93 in 2018.

Figures:

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