Morningstar | Shopify’s App and Channel Ecosystem Supports Switching Costs
Shopify is a multichannel e-commerce platform that allows businesses or merchants to set up online stores to sell products. Increasingly, Shopify's services allow these merchants to sell their wares through multiple remunerative channels, such as marketplaces, like Amazon and eBay, or social media outlets, notably Facebook, Twitter, Instagram, and Pinterest. Merchants pay a monthly fee for Shopify's technology, with revenue reported in the firm's subscription solutions segment. However, we view the firm's merchant solutions segment as the larger opportunity, whereby Shopify utilizes its scale to allow merchants to process payments through Shopify Payments or ship their products through Shopify Shipping and UPS, one of the firm's logistics partners. Payments, Shipping, Capital (its merchant cash advance service), and POS, Shopify's point of sales hardware, have yielded a merchant solutions business that is now larger than subscription solutions, even though many of these products were introduced in the past year or two. We believe that businesses built on Shopify's platform are essentially run off of the ecosystem and we see the rapid succession of Shopify's integrable solutions as supportive of a narrow moat. The firm's specialty is small and medium-size businesses, or SMBs, but Shopify Plus customers (enterprise clients) were 3,600 of Shopify's 609,000 total merchants at the end of fiscal 2017. We expect Shopify to expand in the enterprise market, particularly as these established clients can quickly launch direct-to-consumer operations without expanding their network engineer head count. However, we note that seasoned enterprise software vendors are in operation or have entered the e-commerce solutions market (notably, Salesforce and Adobe), creating barriers to robust expansion in the enterprise space.Going forward, we see Shopify as a play on the growth in e-commerce and entrepreneurship trends. We think a growing base of merchants, an expanding enterprise footprint launching offerings internationally, and continued implementation of additional merchant solutions services will drive Shopify's mounting prospects.Shopify provides a cloud-based commerce platform designed for small and medium-sized businesses. Merchants use its software to run their business across all of their sales channels, including web, tablet and mobile storefronts, social media storefronts, and brick-and-mortar and pop-up shops. Co. provides a platform for merchants to create an omni-channel experience that helps showcase the merchant's brand and grow its business. Co.'s platform provides merchants with a single view of their business and customers across all of their sales channels and enables them to manage products and inventory, process orders and payments, build customer relationships and leverage analytics and reporting.
Morningstar, Inc. is a leading provider of independent investment research in North America, Europe, Australia, and Asia. The company offer an extensive line of products and services for individual investors, financial advisors, asset managers, and retirement plan providers and sponsors.
Morningstar provides data on approximately 530,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on more than 18 million equities, indexes, futures, options, commodities, and precious metals, in addition to foreign exchange and Treasury markets. Morningstar also offers investment management services through its investment advisory subsidiaries and had approximately $185 billion in assets under advisement and management as of June 30, 2016.
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