Shopify robot deal will push buttons

It takes a brave company to challenge Amazon’s vast ecommerce business. But Shopify, the second-largest online shopping company in US markets, has a $1bn plan in motion. Adding warehouse and delivery services to its existing business makes some sense. Last week it bought a robot company. Shopify’s shareholders, however, should expect a painful fight.

Shopify has managed to stay largely in the shadows since launching in 2004. Rather than sell stock and direct shoppers to its own website, it enables merchants to use its technology tools under their own brands, while it earns recurring revenue. As businesses grow, Shopify’s subscriptions do too. In the three years to 2018 these have more than tripled.

At a forecast 43% this year, top line is growing twice as quickly as Amazon’s. Shopify shares are up 160% in 2019. Costs, however, remain high and Shopify lacks the sort of cash machine Amazon has in its cloud computing business, AWS. In the first six months of the year Shopify reported a net loss of $53m on sales of $682m.

This explains investor concern over Shopify’s decision to buy robot company 6 River Systems for $450m. The venture, founded by former employees of a similar group purchased by Amazon, should help to automate Shopify warehouses. But it will take a sizeable chunk from Shopify’s $670m in cash, adding $25m to overheads. The latter equates to current estimates for operating profit this year. These plans will require it to raise money. Share issuance may be on the horizon.

Moving into deliveries is a sound idea. Shopify has a customer base of about 800,000 merchants and operates in an industry that should keep growing. While its courage in taking on Amazon is laudable, it will be expensive too. /London, September 13

© The Financial Times 2019