Shopify And BigCommerce Are Building API-based Ecosystems

By: Sramana Mitra

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Ontario-based Shopify (NYSE:SHOP) recently announced its fourth-quarter results that surpassed all market expectations. Nothing seems to be stopping Shopify as it continues to invest in its platform and business.

Shopify’s Financials

Shopify’s fourth-quarter revenues grew 94% to $977.7 million, significantly ahead of the market’s forecast of $910.2 million. Net income was $123.9 million, compared with a net income of $0.8 million a year ago. On an adjusted basis, earnings grew to $1.58 per share, surpassing the market’s forecast of $1.28 per share.

By segment, subscription revenues grew 53% to $279.4 million, ahead of the estimates of $265 million. Merchant solutions revenue rose 117% to $698.3 million.

Among other metrics, gross merchandise volume (GMV) rose 99% to $41.1 billion and Gross Payments Volume (GPV) grew 115% to $19.1 billion.

Revenue for the full year grew 86% to $292.5 million and adjusted net income was $3.98 per share compared with $0.30 per share a year ago.

Shopify did not provide a forecast for the first quarter.

Shopify’s Growth Focus

During the quarter, Shopify made its product, Shopify Balance, available for early access. Shopify Balance lets US-based sellers open no-fee business accounts, allowing them to assess the health of their business by being able to separate their business finances from their personal finances.

Recently, it expanded its accelerated checkout service, Shop Pay. Keeping the growing importance of social networks in mind, Shop Pay has been integrated with Instagram and Facebook. With the expansion, Shopify Payments will process all transactions by Shopify merchants on Facebook and Instagram upon full implementation of the integration later this year. This will be the first time that Shop Pay will be offered outside of Shopify. It will provide buyers on Facebook and Instagram a fast and secure way to checkout. Shop Pay is currently available on Instagram in the US and will be rolled out to merchants on Facebook in the US in the coming weeks.

For the current fiscal, Shopify plans to invest in five key areas of growth. First, Shopify Fulfillment Network will continue to be a growth area. Shopify plans to invest in building the software that will fully integrate fulfillment into Shopify’s tech stack, optimize its distributed network of nodes, and improve the overall merchant experience to deliver fast and affordable fulfillment to end consumers.

Second, it plans to continue to develop the Shop App to transform it into a must-have shopping companion that promotes buyer loyalty and retention. It is looking at investing in building features that will help manage discovery to delivery for the buyer throughout the purchase process. Third, it plans to encourage international adoption by continuing to localize the platform in several non-English speaking geographies.

Fourth, it will invest in growing the adoption of Retail POS and POS Pro offering by investing in foundational technologies to make it easier for merchants to onboard and will be expanding its POS products to more countries. And, finally, it plans to invest in bringing Shopify Plus’s enterprise-level capabilities to more brands both in North America and internationally.

Meanwhile, Shopify has built a PaaS ecosystem through API integrations. The Shopify App Store allows developers to leverage API keys to publish apps on its platform. Shopify claims that it has delivered over 11.6 million app installs so far. 84% of the apps on its App Store have earned revenues for the developers and nearly half of its top 25 grossing apps were published in the last two years. Shopify allows developers to use its Billing API to charge for their app in three different ways: one-time, usage-based, or recurring charges. And, in return, the developer keeps 80% of all revenue. You can read more about my view on the Platform vs API Ecosystems here.

Shopify’s stock is trading at $1,186.47 with a market capitalization of $143.89 billion. It had touched a 52-week high of $1,499.75 last month. The stock hit a 52-week low of $305.30 in March last year.

BigCommerce’s Financials

BigCommerce’s revenue in the fourth quarter grew 39% to $43.1 million. GAAP net loss was ($14.2) million, compared to ($10.3) million fourth quarter of 2019. Non-GAAP net loss per share was ($0.12). Analysts had expected a loss of ($0.15) per share on revenue of $38.5 million.

By segment, subscription solutions revenue increased 33% to $29.7 million. Partner and services revenue (PSR) grew 54% to $13.5 million and accounted for 31% of its Q4 revenue. Among other business metrics, ARR from Enterprise accounts was up 56% to $100.8 million. Number of accounts greater than $2,000 in annual contract value (ACV) was up 82%. Average revenue per account (ARPA) of accounts greater than $2,000 in ACV was up 32% to $14,615.

For the year, revenues grew 36% to $152.4 million with a non-GAAP net loss of ($0.79).

For the first quarter of 2021, BigCommerce expects total revenue between $41.8 million and $42.3 million and non-GAAP operating loss between ($8.2) million and ($7.9) million. For the full year 2021, it expects total revenue between $189 million and $191 million and non-GAAP operating loss between ($34.5) million and ($33.3) million.

BigCommerce’s New Offerings and Partnerships

During the quarter, BigCommerce launched Open Checkout, an open-source extension of its native checkout. The solution has been created to enable merchants, developers, and partners to create fully-customized checkout experiences. The extension has been built on BigCommerce’s Checkout SDK and accelerates the process of adding features such as including branded checkout pages to create a cohesive brand experience throughout the customer’s journey. It optimizes checkout pages to make modern delivery options such as buying online and picking up in-store, scheduling delivery dates, and picking up from shared locations easier. Additionally, it presents a one-of-a-kind front-end interface with customer group rules to provide specific pricing, payment, and shipping methods on the checkout page.

Recently, it also announced a new partnership with EPAM Systems, a leading global provider of digital platform engineering and software development services. Through this partnership, BigCommerce merchants will be able to access EPAM’s expertise in crafting customer-centric experiences across digital touchpoints. Together, the companies will be able to help address e-commerce issues faced by organizations and help them expand their digital presence.

Like Shopify, BigCommerce also operates an API-focused platform. It allows developers to build an app, theme, or custom integration with BigCommerce using its API codes. It does not disclose statistics on the apps and developers leveraging its platform.

BigCommerce went public in August of 2020 at a list price of $24 and raised $216 million. Its stock is currently trading at $60.89 with a market cap of $4.07 billion. It hit a high of $162.50 in August.

Disclosure: All investors should make their own assessments based on their own research, informed interpretations, and risk appetite. This article expresses my own opinions based on my own research of product-market fit, channel execution, and other factors. My primary interest is in product strategy. While this may have bearing on stock movements, my writings tend to focus on long-term implications. The information presented is illustrative and educational, but should not be regarded as a complete analysis nor recommendation to buy or sell the securities mentioned herein. I am not a registered investment adviser and I am not receiving compensation for this article.


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