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What Shopify’s Latest Earnings Say About the State of Digital (Thinks Out Loud Episode 340)

Shopify earnings and the state of digital: Woman preparing boxes for shipment

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Shopify just reported its earnings for the fourth quarter of and full-year 2021. And, much like the AGFAM—Apple, Google, Facebook, Amazon, and Microsoft’s—earnings, Shopify’s numbers tell a fascinating story about the “State of Digital: 2022.” The TL;DR version is that they had an amazing year and that the generational shift to digital continues.

But… that great news for Shopify signals a number of challenges and opportunities for every business. And savvy, future-oriented leaders can learn meaningful lessons from unpacking Shopify’s earnings in more detail.

What do Shopify’s 2021 results tell us about the current state of digital? Why do you care? And what can you do with this information to make the generational shift to digital work for your business? This episode of Thinks Out Loud dives in and takes a look.

Want to learn more? Here are the show notes for you.

Thinks Out Loud Episode 340: What Shopify’s Latest Earnings Say About the State of Digital Headlines and Show Notes

Show Notes and Links

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Past Insights from Tim Peter Thinks

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Recorded using a Heil PR-40 Dynamic Studio Recording Mic and a Focusrite Scarlett 4i4 (3rd Gen) USB Audio Interface into Logic Pro X for the Mac.

Running time: 21m 08s

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Transcript: What Shopify’s Latest Earnings Say About the State of Digital

Well, hello again everyone, and welcome back to Thinks Out Loud, your source for all the digital expertise, your business needs. My name is Tim Peter. This is episode 340 of the big show, and I think we’ve got a really cool show for you today.

Shopify + The AGFAM Tell Us All About the State of Digital in 2022

I am going to follow up on what I said I was going to follow up on last week where, I do take a look at the AGFAM, Apple, Google, Facebook and Microsoft, and their annual reports and their quarterly earnings and things like that. But I also think it’s worth looking at other digital companies and seeing what they say, and what that suggests, in terms of our overall digital transformation. One of the companies I like to look at a lot is Shopify, because Shopify provides a platform for businesses of all size. Small businesses, large businesses, it allows them the opportunity to sell to customers using the web, to create their own storefronts and create an e-commerce experience. So they’re really an interesting model. They’re an interesting proxy for what we’re seeing in terms of overall digital transformation.

Shopify Had a Great Quarter and a Great Year

Let me tell you, Shopify killed it. By the way, this is not investment advice. Although I use their annual report to understand certain things about what’s going on, don’t take investment advice from the, do not, do not, do not. That’s not what this show is about, you should make your own decisions and consult with your own financial advisors, which I am not.

GMV Was Up 47% Year on Year… On Top of Their Best Year Ever

What is true about what’s happened for Shopify is that their numbers have been remarkable. Gross merchandise volume, so the amount of stuff sold through Shopify, this isn’t what they made, this is the revenue brought in by their customers during all of 2021, was up 47% year-on-year. 47%, that’s a huge number. When we’re talking about a company that’s selling over a billion dollars worth of merchandise, and you’re up 47%, that’s crazy, and that would be an amazing number under any circumstances.

But if you remember from the episode we did last year around Shopify’s Monster Year in 2020, they’d grown gross merchandise volume in 2020 by about 96%. So this 47% growth is on top of a year doubling just a year ago.

This is What a Generational Shift to Digital Looks Like

I said at the time that if you want to know what a generational shift to digital looks like, that this is it, and it is. These numbers are staggering. Last year, Shopify said that they powered almost 9% of all retail e-commerce, now they’re at about 10.3%.

That’s just a huge, huge number, and it’s even bigger when you consider that overall e-commerce is growing as well. Overall e-commerce, and I’ll link to all of this in the show notes, was up about 14% year-on-year.

Will This Continue?

Now, when we talk about a generational shift to digital, one of the questions I’ve had, one of the questions people have asked me is, "Was what we saw in 2020 a one-time event, or is it something that’s going to continue?"

And it’s a little bit complicated. The answer is, it certainly was a one-time event, in terms of accelerating forward growth that we would have gotten sometime later. So when we say overall e-commerce growth was up 14.2%, that’s fairly in line with what we’d seen prior to the pandemic. We were averaging somewhere around 14.2%, 14.3% in 201717, 2018, 2019, before we got to 2020, where there was a more than 30% boost year-over-year. So, on one level, the generational shift was something of a one-time event. The other way to look at it though, is that the growth has not slowed down relative to pre-pandemic numbers. So it’s not like we’re going back and regressing, we’re just going back to where we were before the pandemic, in terms of growth. It’s fast-forwarded digital growth by about 18 months.

We’re 18 Months “Ahead of Schedule”

So, if you look at typical pre-pandemic growth rates, we closed 2020 at a number that we shouldn’t have expected to see before this year, and probably not for a couple months yet this year. The digital economy is roughly running about 18 months "ahead of schedule". Another way to look at that is we’re enjoying 2023’s revenues today, and it looks like that trend is going to continue essentially forever.

E-commerce growth will slow over time. Any maturing vertical does, any maturing industry does. It’s rare you keep growing at the same rates forever, eventually you run out of places to grow too. But we are living through, we continue to be seeing just this incredible generational shift. E-commerce is now over 19% of total retail. And that ignores, of course, the digital influences which, from my perspective, and from everything I’ve seen is, all of it.

It’s All E-commerce, 2022 Edition

There’s a reason that I’ve long said it’s all e-commerce. Customers carry the internet in their pocket. They’re making decisions based on their digital experiences, and we’re going to talk about this more in just a second. So it’s something that, digital isn’t going away, it’s continuing to grow, and it’s growth isn’t going away.

I can’t think of industries that wouldn’t love to be seeing a 14% growth year-on-year, especially when it’s coming off a 30% growth the prior year. So what we’re seeing in Shopify’s growth is that this business continues to shift, this behavior continues to shift, and your customers continue to look for the right information, continue to use this channel, based on when it’s most appropriate for them.

Now there’s some interesting consequences of this that I think we have to keep in mind, to make this a little more broad than just how Shopify do. And I mean, good for Shopify, they had a great quarter, well done, and a great year.

Some Consequences of a Generational Shift to Digital

But some of the consequences you want to think about as we shift to digital is first, there’s going to be more competition. Some of Shopify’s growth in gross merchandise value is because their existing customers sold more merchandise. That’s part of where their growth came from.

And some of it came because new entrants are using their tools. People who had not ever used e-commerce as a channel are setting up Shopify shops or selling through Amazon directly or things along those lines, and they’re selling to customers that they’d never saw old to before, because it’s so much easier. I talked about this a few years ago in an episode called “Deal With It. Digital Makes Marketing Easier for Everyone, Which Makes Marketing Harder for Everyone.”

Getting Started is Easier…

Part of what makes Shopify and tools like Airbnb and Amazon Web Services and Google Cloud Platform, and on and on and on so great is that it’s so much simpler to get up and running than where we were just a few years ago. You can go from a standing start to a full featured digital experience in days, weeks. Something that used to take months of planning and months of work, you can set up essentially in a few clicks. Obviously, depending on how big your enterprise is and how much you need to sell and things like that, it can be a little harder, but fundamentally you could start selling today through any of these channels. It’s just not that hard compared to what it used to be. There’s a service business that I work with, they’re not really a client, they’re just friends of mine. I know them, they’re local business, and they recently started selling physical merchandise and they got it going in weeks literally. Like six weeks, it was crazy.

But That Means It’s Easier for Your Competitors, Too

And it’s incredibly cool. At the same time, every silver lining has a cloud. There’s a problem hidden in that, which is that the same is true for your competitors. They can also go from a standing start to a fully featured digital experience in just days or weeks. And as Shopify’s numbers suggest, that’s what they’re doing. That increases the number of companies you have to compete against. It increases the alternatives available to your customers. It makes available more options of the job to be done that your customer is hiring your product or service to do. And that makes your job harder, because now you can’t just put something out there, and win by being the only game in town. You can for a while, but you can’t for long. You actually have to provide a differentiated benefit to your customers.

It really gets at what I was talking about on last week’s show, when I was talking about Lively hearing aids. They provide a better service. They provide a better offering than what else is in the marketplace, at least from my perspective, at least from what I’ve seen previously and they’re winning business because of it, they certainly won mine. So that’s one huge consequence of what’s going on there.

There’s Also Greater Competition for Talent

Another huge consequence is that we are running into a real problem, finding the people who can help us with these digital transformations. I don’t mean we, Tim Peter & Associates, I mean, companies who are looking to hire to get better at digital are struggling. To be perfectly candid, this is a good thing for Tim Peter & Associates, and I’m not trying to do an ad for my business, but it makes more people want to hire me.

At the same time, there are things you need to do in-house. There are things where you want talent, and you want intellectual property to fit within your four walls. So, hire us for the stuff we can help you with, and we’ll help you find the people who you want to bring inside your four walls. It’s also true that finding those people is getting tougher and tougher.

“Planet Earth has not made enough engineers to deal with the rapid digitalization that we’ve gone through…”

Tobi Lütke, who’s the CEO of Shopify said, and this is a quote, "Planet Earth has not made enough engineers to deal with the rapid digitalization that we’ve gone through with COVID." As I mentioned a few weeks ago in, “Why Would Anyone Want to Work For You?” this labor trend is going to be a tough one in the coming months, and probably years. Talent of all kinds is getting tougher to find.

When we talk about The Great Resignation and things like that, it is getting tougher and tougher to find quality people who want to work for you at a reasonable wage, and have the skill sets that you need to get various jobs done, especially, especially in digital.

There was a study from the IEEE that showed 70% of technology leaders around the globe said, "Recruiting technologists to fill job openings is a challenge." I was moderating a meeting of a group of large enterprise digital leaders the other day, just this past week, and probably the number one topic that came up again and again and again was about their difficulties finding people. It just came up again and again and again, and they’re responding in some amazing ways, some really incredible ways.

How Future Leaders Are Responding to the Situation

Generally speaking, they’re all providing greater flexibility, in terms of the return-to-office, and offering more remote or more hybrid opportunities, they’re also looking for ways to help their employees grow their careers more broadly. They’re allowing their people to learn and grow. Which is great, because in many cases you might have talent sitting inside your four walls already, they just may need some help from a training perspective or from a learning perspective, to help them learn how to do this better.

Now, I haven’t heard many organizations talk about training and development in their earnings calls, but there are plenty of opportunities there, and it’s something I would expect to see in the coming months and the coming years. We’re definitely seeing it in some industries, and retail is one, hospitality is another. Companies are starting to pay college tuition and costs for frontline workers, and really all their work worker. Target, Walmart, Costco, even Dollywood announced these kinds of programs, to help find and attract workers to their businesses. I’m not going to be surprised even a little to see other companies offer that to all employees as they seek to find and attract digital talent.

Conclusion: What Shopify’s Latest Earnings Say About the State of Digital

So, what have we learned from Shopify’s quarterly earnings, from their annual learnings call?

Well, we’ve learned that e-commerce is still growing like crazy. We’ve learned that we are still living through a generational shift to digital. We’ve learned that what happened in 2020 might have been a one-time event, but it didn’t change long-term growth rates at all. It simply accelerated where we were, and then we went back to long-term growth rates along the way. It sure seems to be the case. We learned that customers continue to seek out digital experiences. We learned that it’s getting easier and easier and easier for your competitors to make their businesses available to customers everywhere through digital channels, and not just their customers, but yours too.

And we learned that there’s still a lot of competition, and probably will be for a while for talent. You’re not just competing for customers, you’re competing for employees as well, and it’s something you need to think about pretty carefully, to ensure people will choose you as the place they want to be. So Shopify had a great year, and they created a whole bunch of lessons, just as did the AGFAM, Apple, Google, Facebook, Amazon and Microsoft, about what you can do to compete for customers and talent as you go forward. The question now is, are you ready to put those lessons to work?

Subscribe to Thinks Out Loud

Now, looking at the clock on the wall, we are out of time for this week. I want to remind you that you can find the show notes for today’s episode, as well as an archive of all past episodes, by going to timpeter.com/podcast. Again, that’s timpeter.com/podcast. Just look for episode 340.

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Sponsor Message: SoloSegment

As I do each and every week, I’d like to thank our sponsor. Things Out Loud is brought to you by SoloSegment. SoloSegment provides an amazing suite of search tools that provides search as a service for large enterprises. Don’t lose customers by making the content that they need hard to find. Look at SoloSegment, to find search results that focus on business results, and help customers find the content that matters to them and drive results for your business. SoloSegment does this all while protecting customer privacy and driving business results for you along the way. You can learn more about SoloSegment and all the amazing work that they do, by going to solosegment.com. Again, that’s solosegment.com.

Show Outro

With all that said, I just want to say one more to time how much I appreciate you listening to the show every single week. It means so much more to me than I can possibly express, and I just want to say thanks for being here. So with that, I hope you have a wonderful rest of the week. I hope you have a great weekend, and I look forward to speaking with you here on Thinks Out Loud next time. Until then, please be well, be safe and as always take care everybody.

Tim Peter is the founder and president of Tim Peter & Associates. You can learn more about our company's strategy and digital marketing consulting services here or about Tim here.

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