Shopify Inc.

Summary

Shopify Inc., a commerce company, provides a commerce platform and services in Canada, the United States, Europe, the Middle East, Africa, the Asia Pacific, and Latin America. The company's platform enables merchants to displays, manages, markets, and sells its products through various sales channels, including web and mobile storefronts, physical retail locations, pop-up shops, social media storefronts, native mobile apps, buy buttons, and marketplaces; and enables to manage products and inventory, process orders and payments, fulfill and ship orders, new buyers and build customer relationships, source products, leverage analytics and reporting, manage cash, payments and transactions, and access financing. It also sells custom themes and apps, and registration of domain names; and merchant solutions, which include accepting payments, shipping and fulfillment, and securing working capital. The company was formerly known as Jaded Pixel Technologies Inc. and changed its name to Shopify Inc. in November 2011. Shopify Inc. was incorporated in 2004 and is headquartered in Ottawa, Canada.

The Idea

In 2004, Tobias Lütke, Daniel Weinand, and Scott Lake wanted to create a website for their own store called Snowdevil. However, not satisfied with existing e-commerce platforms, Lütke build an e-commerce platform by himself and Snowdevil was launched. In 2006, they officially launched Shopify which provides a set of tools merchants can use to build their own website. Initial products of Shopify assisted merchants to set up customized store templates, tracked orders in an RSS feed, and automated inventory organization. Also, payments could be processed through a PayPal or credit card processor integration. Shopify has redefined the point of sale (POS) for e-commerce. In 2013, Shopify launched Shopify payments. Instead of using third-party payment gateways, Shopify payments allowed merchants to use Shopify’s own payment. Furthermore, in 2017 they produced iPad POS that directly accepts debit and credit card payments. It is still widely used by physical business sites. 

Mission Statement

Shopify’s mission is to make commerce better for everyone[1]. In their own words “We help people achieve independence by making it easier to start, run, and grow a business. We believe the future of commerce has more voices, not fewer, so we’re reducing the barriers to business ownership to make commerce better for everyone.”[1] Essentially, Shopify's fundamental mission revolves around the advancement of commerce for the collective benefit of all individuals. The company is deeply committed to empowering aspiring entrepreneurs, facilitating their path towards independence by offering comprehensive tools and resources necessary for the initiation, operation, and expansion of successful businesses. Operating within a user-friendly platform, Shopify strives to streamline the intricacies associated with entrepreneurship, thus rendering the endeavour more approachable and less daunting.

• Shopify focuses on supporting independent businesses during their early stages.
• The platform is designed to cater to various needs of  entrepreneurs, including digital storefronts, inventory management, and seamless transactions.
• The company aims to promote growth by crafting a scalable platform to adapt to evolving businesses.
• Shopify values diversity and inclusivity, striving to  provide equal opportunities in commerce.
• They achieve this by making tools affordable and accessible to all individuals, regardless of scale.
• Shopify's guiding principles are accessibility, empowerment, and inclusivity.

References

1. https://www.shopify.com/uk/about

The Team

Tobi Lütke, Founder & Chief Executive Officer

Tobi Lütke is the founder and Chief Executive Officer of Shopify. In 2004, Tobi began building software to launch an online snowboard store called Snowdevil. It quickly became obvious that the software was more valuable than the snowboards, so Tobi and his founding team launched the Shopify platform in 2006. He has served as CEO since 2008 at the company's headquarters in Ottawa, Canada. Tobi is an active advocate for sustainability, computer literacy, and education, and serves as a board member of Canada Learning Code, an organization working to give all Canadians access to digital skills. He also served as Chair of the Digital Industries Table, an advisory board commissioned by the federal government to provide recommendations on how to turn Canada into a digital leader.

Harley Finkelstein, President

Harley Finkelstein is President at Shopify and has been with the company since 2010. He oversees Shopify’s commercial teams, growth & external affairs. Harley holds a Bachelor degree in Economics from Concordia University and a J.D./M.B.A. joint degree in Law and Business from the University of Ottawa. Prior to his current role, Harley was Shopify’s COO and has founded numerous startups and ecommerce companies.

Jeff Hoffmeister, Chief Financial Officer

Jeff Hoffmeister is the Chief Financial Officer at Shopify and joined in October 2022. He previously worked in Morgan Stanley's Technology Investment Banking group for 22 years in their New York, London and Boston offices. His prior roles at Morgan Stanley included Head of the Americas Tech Banking team and Head of Technology Investment Banking for EMEA. Jeff began his professional career at PwC, serving in their auditing division. Jeff has significant experience leading high-profile tech companies in a variety of transactions, including initial public offerings, follow-on offerings of equity, debt and convertible notes, and both buyside and sellside M&A transactions. Notably, Jeff helped lead IPOs for dozens of companies, including Shopify. He graduated from Georgetown University with a Bachelor of Science in Business Administration and has a Master in Business Administration from the University of Virginia Darden School of Business. He also holds a license as a certified public accountant (CPA).

Kaz Nejatian, VP Product & Chief Operating Officer

Kaz Nejatian is Shopify’s VP of Product and Chief Operating Officer and has been at Shopify since 2019. Prior to becoming COO, Kaz was VP of Product, Merchant Services, and Commercial. Kaz oversees a cross-functional team that develops and delivers tools for entrepreneurs to supercharge their growth on Shopify. These products give independent merchants access to commerce innovations that have historically only been available to big businesses. After working as a lawyer in his early career, Kaz parlayed his life interests of entrepreneurship, finance, and technology into co-founding and serving as the CEO of Kash, a payment technology company which was acquired in 2017 by one of the largest fintech companies in the U.S. Kaz then served as Product Lead for Payments and Billing at Facebook, reducing the barriers for businesses in cash-dependent markets to purchase digital ads without a credit card. Kaz is a graduate of Queen’s University’s School of Business and the University of Toronto Faculty of Law. Along with being a key player in making commerce better for everyone, he is also a husband and the proud father of three children.

Jess Hertz, General Counsel

Jess Hertz is General Counsel at Shopify since 2021, where she oversees our global legal team. Jess is a U.S. lawyer with significant tech, policy, and operational experience. Before joining Shopify, she served as Deputy Assistant to the President and Staff Secretary to President Biden. She also served as General Counsel for the Biden-Harris Transition Team, where she oversaw all legal aspects for the presidential transition in 2020-2021. Prior to her work for the Biden administration, Jess led the North America regulatory team for Facebook, where she was responsible for managing the company's civil regulatory inquiries. Previous to her work at Facebook, Jess was a partner at Jenner & Block LLP, a Chicago-based private law firm. Jess earned her law degree from the University of Chicago Law School, and her undergraduate degree from Harvard College.

Tia Silas, Chief Human Resources Officer

Tia Silas is Shopify’s Chief Human Resources Officer, joining in 2022 to oversee Culture, Internal Operations, Employee Experience & Talent teams. Prior to joining Shopify, Tia was EVP of Human Resources at Wells Fargo, where she was responsible for leading people strategies across a number of areas such as Global Technology, Strategy, Digital and Innovation, as well as the Corporate and Investment Bank. Tia also worked at IBM as the Global Chief Diversity & Inclusion Officer where she was responsible for driving diversity and inclusion strategies across the globe with hundreds of thousands of employees. Tia graduated from Cornell University with a B.S. in industrial and labor relations, and attained her MBA from New York University, Stern School of Business.

Andrew Dunbar, Chief Information Security Officer

Andrew Dunbar is the Chief Information Security Officer at Shopify and has been with the company since 2012. He leads the team responsible for safeguarding the millions of merchants on the Shopify platform, educating all employees on the best security practices, and ensuring that Shopify implements innovative security techniques to meet the changing needs of commerce globally. Prior to joining Shopify, he worked as an IT Security Specialist and Programming Analyst for Global Affairs Canada (formerly known as the Department of Foreign Affairs, Trade, and Development). He began his journey in this space by completing a Bachelor’s of Engineering (Software) from Carleton University.

Glen Coates, VP Product

Glen is the VP of Product, Core, leading the development of Shopify’s core commerce platform: the storefront, checkout, backoffice, marketing and analytics tools that all merchants get “in the box”. He also oversees the core developer platform that Shopify’s theme and app developers build the future of commerce on and Shopify’s partner ecosystem, which includes over 10,000 publicly available apps in the Shopify App Store. Glen’s work at Shopify is the culmination of a career in software engineering, commerce, and entrepreneurship. Originally a CompSci grad who cut his teeth in video game development, he moved from Sydney to San Diego in 2008 to run US distribution and ecommerce for an Australian eco products company. In 2010, he attended Columbia Business School for one whole day before quitting to start Handshake, a SaaS B2B ecommerce platform headquartered in New York. Glen joined Shopify in May 2019 when the company acquired Handshake. Glen has been in the Vice President role since October 2020.

Luc Levesque, Chief Growth Officer

Luc is Shopify’s Chief Growth Officer and joined the company in January 2020. At the age of 21, Luc Levesque founded TravelPod, the world’s first travel blogging platform, which was acquired by Expedia. While at Expedia, Luc led the creation of two award-winning products: TripWow and the Traveler IQ Challenge. Luc served as an executive at TripAdvisor, where he built and led the growth team which helped TripAdvisor become the world’s largest travel site. Luc was then recruited by Mark Zuckerberg to Facebook where he was an executive and held product and engineering leadership roles. Luc has advised companies like Twitter, Pinterest, and Quora. He has been a guest speaker at Harvard University, has been featured in the New York Times, and was awarded the International Executive of the Year Award and the Forty Under 40 Award by the Ottawa Business Journal.

Bobby Morrison, Chief Revenue Officer

Bobby is the Chief Revenue Officer at Shopify, joining the executive team in August 2022. Prior to bringing his 25+ years of experience in transforming multi-billion dollar organizations, he was the Chief Sales Officer at Intuit, where he led the Sales, Partner, and Business Development for the Small Business & Self-Employed Group as well as Sales for the ProConnect and Consumer Group, and focused on the commercial transformation of the business. Prior to Intuit, Bobby was the VP of the Small, Medium & Corporate Segments at Microsoft where he was responsible for growing the global SMC business to $25B+ in annual revenue. He also spent 19 years in a variety of executive roles at Verizon, which include leading digital operations, e-commerce, sales, commercial strategy, marketing, and go-to-market. Bobby joined the board of directors Panopto in 2021, the leading video management system provider in the enterprise and higher education markets. He also serves on the advisory boards for Subsplash and Saviynt.

Risks

Risks Related to Competitors

Shopify's main competitors are Wix, BigCommerce, and Squarespace. These competitors offer similar services, but Shopify has some advantages, such as its low starting price and its SSL certificate. However, the competition is fierce, and Shopify could lose market share if it does not continue to innovate.

1. Wix: Wix is a website builder that offers e-commerce functionality. It has a drag-and-drop interface that makes it easy to use. Wix is best suited for small businesses that want to create an online store quickly.

2. SquareSpace: SquareSpace is a website builder that offers e-commerce functionality. It has beautiful templates and is easy to use. SquareSpace is best suited for small businesses that want to create an online store with a modern look.

3. BigCommerce: BigCommerce is an e-commerce platform that offers a range of features for online stores. It has a drag-and-drop interface and is easy to use. BigCommerce is best suited for medium-sized businesses that want to sell products online.

Risks Related to Financials

Shopify has been growing rapidly, but it is still not profitable. The company has been investing heavily in growth, and this has led to a net loss of $1.9 billion in 2023. If Shopify cannot become profitable, its stock price could decline.

Risks Related to Operations

Shopify's operations are complex. The company relies on a network of independent merchants, and it must ensure that these merchants are able to deliver products on time and in good condition. Shopify also relies on its website and payment processing systems, and any disruptions to these systems could hurt the company's business.

1. Inventory

It's worth noting that many of the independent shops on Shopify are based in the East. Each shop owner is self-employed, so it is difficult to have a mature delivering system like amazon. May face a series of problems such as tax problems, transaction fee, hoarding backlog, geopolitical events and even there are even small businesses that don't have physical storage. If the goods are not delivered in accordance with the specified time, this would lead to consumer disapproval of the entire Shopify platform.

2. Technology and payment

Shopify heavily depends on websites and payment processing to do business. Server failures, system interruption or other technical issues could hurt sales while a data breach or failure to protect customers’ payment information may leave the company exposed to penalties under consumer-protection laws, while also harming the brand’s finances and reputation.

Risks Related to Markets

The global economy is facing some headwinds, such as rising inflation and interest rates. This could dampen consumer spending, which could hurt Shopify's business.

Risks Related to Growing the Business

Shopify is focused on growing its business by expanding into new markets and by offering new services. This could be a risky strategy, as it could lead to increased costs and decreased profitability.

Shopify is focused on releasing more tools that help more types of businesses growth their sales, both online and offline. It also rolled out a handheld tool called POS Go with a built-in barcode scanner, card reader and inventory tracker to power in-person sales. But such an approach would also increase R&D costs, manufacturing costs, and thus might make Shopify's net profit even lower

Furthermore, Shopify may have to be flexible in the way that it charges sellers for their services in order to show a clear ROI for their clients. This could potentially affect Shopify's reputation and thus their stock price.

Overall, Shopify is a high-growth company with a lot of potential. However, there are also some risks associated with investing in the company. Investors should carefully consider these risks before investing in Shopify.

ESG Factors

Social

1. Shopify exists to lower the barriers to business ownership for entrepreneurs of all ages and backgrounds. We support the entire entrepreneurial journey—from discovery and development to growth and success.
2. But we know the playing field is far from level. Socioeconomics, race, and gender are just a few of the factors affecting who can participate and how.
3. Our merchant education and equitable entrepreneurship programs are designed to improve accessibility, instill an innovation mindset, and empower business owners to thrive. We believe entrepreneurship is an opportunity for everybody—and the future of commerce should be as diverse as it is bright.

Governance

1. As a merchant-first, product-centered, mission-driven company, the core values of entrepreneurship are at the heart of our culture. We foster this spirit of entrepreneurship within the Shopify community by encouraging creativity, diverse perspectives, and bold innovation.
2. By recruiting, developing, and supporting a diverse workforce that reflects the Shopify ecosystem, and by fostering a healthy work-life balance, we’re creating space where our employees can show up as their authentic and best selves.

Investment Thesis

Strengths

1. Wide Market Reach: Shopify serves businesses of all sizes, from small and medium-sized enterprises to large corporations, enabling the company to tap into a vast and diverse customer base.
2. Innovative Ecosystem and Partnerships: The Shopify ecosystem benefits from a vibrant community of developers, designers, and third-party app providers, fostering continuous innovation and expanding the platform's functionality.
3. User-Friendly Platform: Shopify's user-friendly interface and intuitive design allow merchants with limited technical expertise to set up and manage their online stores easily.
4. Scalability and Customization: The platform is highly scalable, enabling businesses to grow and adapt to changing needs while offering a wide array of customization options to create unique online shopping experiences.
5. Strong Financial Performance: Shopify has exhibited consistent revenue growth and impressive financial results, driven by an expanding merchant base and increased average revenue per user. Its subscription-based business model, coupled with transaction and payment processing fees, provides a diversified revenue stream.
6. Global Market Presence: Shopify has a strong international presence, enabling merchants to operate in multiple countries and currencies. As e-commerce adoption continues to grow worldwide, Shopify is well-positioned to benefit from global market expansion.
7. Expanding Merchant Base: The company has had successful continuous efforts to expand its merchant base, attracting new entrepreneurs and established brands. As the e-commerce market grows, Shopify will benefit from a broader customer base.

Challenges

1. Intense Competition: The e-commerce market is highly competitive, with established players and new entrants vying for market share. Shopify faces competition from platforms like WooCommerce, BigCommerce, and Wix.
2. Reliance on Third-Party Partners: While the developer ecosystem is a strength, it also poses a risk as the quality and reliability of third-party apps and services can impact the user experience.
3. Regulatory and Compliance Risks: As the company expands globally, it must navigate varying regulatory environments and compliance requirements, especially concerning data protection, taxation and payment processing, which could add complexities and costs.
4. Margin Pressure: As Shopify expands its services and offerings, it may face margin pressure due to increased operating costs.
5. Market Saturation: While e-commerce continues to grow, there might be limitations on the number of merchants entering the market or switching platforms. As the market matures, Shopify might experience slower growth rates and increased competition for market share.