Amazon vs Shopify Q3 2022

Shopify Up vs. Amazon Down — Q3 Results Tell Two Different Stories

It’s that time of the year when Q3 results get announced and while Shopify and Amazon both released their finances, two very different stories were being told.

On the release of Amazon’s results, their stock price tanked close to 20% after revenue and guidance both missed Wall St expectations. Shopify on the other hand saw its stock jump around 17% after its quarterly revenue beat expectations resulting in a smaller-than-expected loss for the company.

Shopify’s Transition Appears To Be Working

After Covid-19 it became apparent that the glory days of eCommerce that were experienced, were not likely to stay at the levels they had reached. Which led the question for many eCommerce giants how would they handle the “return-to-normal”.

Back in Q1 of this year we reported on how after posting its results Shopify had seen a 15% drop in their share price. This was the first public indicator that the growth experienced throughout 2020 and 2021 was not going to be as sustainable as many had hoped and that earnings expectations were missed.

This is when Shopify got to work and acknowledged what they needed to do and the adjustments they needed to make. Throughout the year we have covered how they have released a huge number of product and features to the Shopify ecosystem. They also took the difficult decision to fire roughly 10% of their workforce as part of a huge restructure in order to get back towards a profitable model.

These actions taken throughout the year seem to have worked and has now put the company in a better than anticipated position with the potential for an even better Q4 in which are expected to be trying economic times for consumers.

Shopify’s Q3 2022 Financial Results Highlights

  • Total revenue increased 22% to $1.4 billion compared to the prior year, which was negatively impacted by approximately 2 percentage points given the significant strengthening of the U.S. dollar relative to foreign currencies in the third quarter of 2021. On a three-year basis, the total revenue CAGR was 52%.
  • Monthly Recurring Revenue (“MRR”) as of September 30, 2022 increased 8% to $107.0 million compared to the prior year. The gains year over year in the number of Shopify Plus merchants on the platform and the thousands of additional retail locations utilizing POS Pro were partially offset by the impact of the free and paid trial experiences launched in the quarter. These trial programs are immaterial to MRR until those merchants convert to one of our non-Plus subscriptions. Shopify Plus contributed $35.1 million, or 33%, of MRR compared with 28% of MRR as of September 30, 2021.
  • Subscription Solutions revenue increased 12% to $376.3 million compared to the prior year, primarily due to growth in MRR and reflecting lapping of our change in terms to make selling in our app and theme stores free for partners up to their first million dollars annually, terms that we put in place in the middle of the third quarter of 2021.
  • Gross Merchandise Volume (“GMV”) increased 11% to $46.2 billion, an increase of $4.4 billion over the third quarter of 2021. Gross Payments Volume (“GPV”) grew to $25.0 billion, representing 54% of GMV processed in the quarter, versus $20.5 billion, or 49%, for the third quarter of 2021. GPV continued to benefit in the quarter from strong performance by merchants on Shopify Payments of which an increasing percentage is Shopify Plus GMV, new merchant adoption both in North America and internationally, penetration gains within Shop Pay and the expanded availability of our POS Pro hardware with integrated payments.
  • Merchant Solutions revenue increased 26% to $989.9 million compared to the prior year, driven primarily by the growth of GMV and merchants continuing to utilize our solutions to run greater parts of their business. The primary drivers of the growth include an increased GMV penetration of Shopify Payments, Shopify Capital, and Shopify Markets, greater revenue contribution from partners, and the contribution from the first quarter of Deliverr.

    Excluding Deliverr, Merchant Solutions revenue increased 21 percent year over year. Merchant Solutions revenue growth was negatively impacted by approximately 3 percentage points due to the strengthening U.S. dollar compared to the prior year.
  • Gross profit dollars grew 9% to $662.3 million, compared to the prior year, reflecting primarily a greater mix of lower-margin Merchant Solutions revenue, lower margins from Shopify Payments and Deliverr revenue as well as increased investments in our cloud infrastructure. On a three-year basis, the gross profit CAGR was 45%.
  • Adjusted gross profit dollars grew 11% to $681.8 million, compared to the prior year. On a three-year basis, the adjusted gross profit CAGR was 46%.

Amazon Misses Expectations Causing Worry For Investors

The long term golden child of eCommerce has had a humbling Q3 in 2022 as the company has had to report missed expectations for both revenue and net sales. Their reported revenue was $127.1 billion versus the expected $127.63 billion. AWS’s actual net sales were $20.5 billion versus $21 billion in expected sales.

In previous financial reports we have been used to seeing Amazon supported by its AWS branch of the business, however in Q3 the company has reported that even AWS has missed the expectations that were set in Q2 for this quarter.

While Amazon tried to boost sales under the guise of helping customers get deals earlier than ever this year, it appears that their second Prime Day was not as successful as they may have hoped. While they have not released any of the actual numbers around the event Bank of America analysts have estimated that the day brought in $5.7 billion, a drop from the $7.5 billion it estimated the main July Prime event did.

Amazon CEO Andy Jassy has this to say; “There is obviously a lot happening in the macroeconomic environment, and we’ll balance our investments to be more streamlined without compromising our key long-term, strategic bets. What won’t change is our maniacal focus on the customer experience, and we feel confident that we’re ready to deliver a great experience for customers this holiday shopping season.”

Amazon is far from dire straits however it goes to show that even the largest companies are not immune from the economic challenges that are currently facing millions of Americans and others around the world.

Amazon’s Q3 Financial Results Highlights

  • Net sales increased 15% to $127.1 billion in the third quarter, compared with $110.8 billion in third quarter 2021. Excluding the $5.0 billion unfavorable impact from year-over-year changes in foreign exchange rates throughout the quarter, net sales increased 19% compared with third quarter 2021.
    • North America segment sales increased 20% year-over-year to $78.8 billion.
    • International segment sales decreased 5% year-over-year to $27.7 billion, but increased 12% excluding changes in foreign exchange rates.
    • AWS segment sales increased 27% year-over-year to $20.5 billion, or increased 28% excluding changes in foreign exchange rates.
  • Operating income decreased to $2.5 billion in the third quarter, compared with $4.9 billion in third quarter 2021.
    • North America segment operating loss was $0.4 billion, compared with operating income of $0.9 billion in third quarter 2021.
    • International segment operating loss was $2.5 billion, compared with operating loss of $0.9 billion in third quarter 2021.
    • AWS segment operating income was $5.4 billion, compared with operating income of $4.9 billion in third quarter 2021.
  • Net income decreased to $2.9 billion in the third quarter, or $0.28 per diluted share, compared with $3.2 billion, or $0.31 per diluted share, in third quarter 2021.
    • Third quarter 2022 net income includes a pre-tax valuation gain of $1.1 billion included in non-operating income from the common stock investment in Rivian Automotive, Inc.
  • Operating cash flow decreased 27% to $39.7 billion for the trailing twelve months, compared with $54.7 billion for the trailing twelve months ended September 30, 2021.
  • Free cash flow decreased to an outflow of $19.7 billion for the trailing twelve months, compared with an inflow of $2.6 billion for the trailing twelve months ended September 30, 2021.

What Does This Mean?

At this stage it is far too early to draw any huge conclusions. But what it does tell us is that the actions that Shopify took earlier this year appear to be paying off. The internal restructure and focusing on building useful tools and features for its users seems to be working.

Amazon however appears not to have taken similar actions. Only recently did we hear reports that they had put a freeze on new corporate hires and that some planned distribution centers had experienced pauses in development and construction.

It appears though that perhaps Amazon has become too complacent on AWS coming to the rescue when the marketplace side of the business wasn’t performing as well. Now they have seen that not even the mighty AWS can mask the issues any longer which means we may see some actions from Amazon over the coming months to address the loss making across the business.

It will be interesting to see how the company performs throughout the Black Friday and holiday season and if that can turn the tables when they release their Q4 results in early 2023.

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