February 19th, 2024: Shopify reports Q4 2023 earnings, Target has a new strategy: Become Tar-Mu, Walmart may be Looking to buy TV maker Vizio, and celebrating the 5th Anniversary of RMW Commerce
Today’s episode of the Watson Weekly podcast is sponsored by Commercetools.
<insert recorded ad>
It’s February 19, 2024 and this is the Watson Weekly - your essential eCommerce Digest!
Today on our show:
Shopify Reports Q4 2023 Earnings
Target Has a New Strategy: Become Tar-Mu
Walmart May Be Looking to Buy TV Maker Vizio
Celebrating the 5th Anniversary of RMW Commerce
- and finally, The Investor Minute which contains 5 items this week from the world of venture capital, acquisitions, and IPOs.
==
To hear new episodes of the show every Monday morning, subscribe now at rmwcommerce.com/watsonweekly and wherever you get your podcasts.
==
[PAUSE]
BUT FIRST in our shopping cart full of news….
Shopify Reports Q4 2023 Earnings
On the plus side: GMV is up, revenue is up, gross margin is up, subscription pricing was just expanded, and EMEA and POS are huge growth drivers.
EMEA is lower gross margin than US merchant solutions revenue (a problem they need to fix ASAP) .
Shop Cash Campaigns is a new customer acquisition platform. Only redeemed on Shop App. Very closed opportunity now. Expect them to try and drive Shop Cash into other major channels from an acceptance point of view, to limited success due to "Trojan Horse" vibes. But they need to try.
Q4 2023:
* Revenue growth of 24% (30% ex-logistics)* GMV up 23%
* Attach rate down to 2.85% (revenue/GMV), slightly down due to Q4 mix.
* Merchant Solutions (now 76% of revenue) up 21%: GMV growth + Shopify Payments penetration.
* Shopify Gross Payments Volume is now 60% of GMV
* Subscription Solutions up 31%: merchant growth and Standard price increases
* MRR up 35% to $149M. Shopify Plus now 31% of MRR (down from 33% due to price changes in 2023 I expect will normalize more in 2024 and 2025).
* Gross margin improved 7.6% y/y to 49.5% due to sale of logistics business. Gross profit dollars grew 33%.
* Operating income margin of 13%, FCF margin of 21%, compared to 5% a year ago.
FY 2023:
* Revenue up 26% to $7.06B
* GMV up ~20% to $239.5B
* Attach rate at 3%, 150bps better than last year (mostly due to savings not margin expansion)
Q1 Outlook
* Revenue growth in low 20s y/y, adjusted to mid-high 20s ex-logistics
* Gross margin up 150bps q/q due to impact of outsized Q4 GMV
Good:
* Sales and marketing expenses at 15% of revenue which is not what a typical Enterprise SaaS player looks like at all. This gives Shopify room to expand its Enterprise GTM here.
* Shopify still attacking across all segments. It’s main enemy is still itself a nice play to be.
* Shopify needs to figure out its “AWS” - how do they expand margins significantly at the same time they are growing? Only then will they be considered in not just the growth category. The company is experimenting but it’s still very early days.
Negatives:
* How can Shopify do to expand its EMEA merchant solutions gross margins? Problem as this # gets bigger. Simply reselling payment solutions has its limits as you expand internationally.
* $1.3B impairment from logistics sale. They just donated another $260M to Flexport. Good money after bad,?
Other Observations:
* Shopify was asked on the call who they plan to take the most share from in Enterprise software. Harley dodged the question. Let me answer it, it’s Salesforce and the second player is not close.
* Shopify Plus MRR is 31% of MRR, declining from 34% last year due to pricing adjustments. Recent Plus pricing updates will reverse this trend for 2024.
* 14% of Shopify GMV is cross-border
My quarterly WTF:
* Mr Beast is not an Enterprise brand. It's a person
[References:]
Our Second Story
Target Has a New Strategy: Become Tar-Mu
Target: A Day Late And a Dollar Short With New Dealworthy House Brand
Target today announced a new house brand for $1-$10 items called "dealworthy" . This new offering achieves the trifecta of nonsense.
1 - Doesn't address the root problem of cost to serve combined with assortment.
For the past two years, Target has been trying to recover its inventory footing when it had the wrong assortment, and not enough of it. Sure, it's cheaper to ship from stores, but your assortment is so low it doesn't matter.
Temu has centralized inventory in China and a broad constantly refreshing assortment subsidized by the government and if you believe the reports, slave labor, poor wage practices etc. Dollar Stores have many cheap stores, sparsely staffed by lower wage employees.
Still, cost to serve is not mentioned.
2 - Cheapens the overall brand
Target has been long known for upscale value. In the launch of this brand, it is trying to indicate that you get quality, but don't sacrifice low price. This kind of thinking is nonsensical and the consumer knows otherwise.
Anyone who buys something for a $1 knows that if it doesn't work out, you toss it. Not only is just this not a very sustainable policy, it doesn't raise the profile of your brand even if you "stand behind it". What exactly are you standing for and why?
3 - The new return policies are ridiculous
In a world where returns can kill your bottom line and many brands are just saying "keep it", Target has announced a year-long return policy on these new $1 dealworthy items. You can't even blink at these items from a reverse logistics point of view without spending at least $20-$40.
In short, it's hard to see this as anything other than a permanent "doorbuster" type play. However, in it, Target has made the ultimate Faustian bargain. Here's a bit of my soul, and you give me back a bit of traffic. At least for a time.
As Andy Jassy said on the Amazon earnings calls, cost to serve must be addressed in a serious way to offer lower ASP items. With this copycat move, Target has signaled that its "lifer" management team is fresh out of ideas.
Perhaps it's time for new blood at Target. The Cornell/Mulligan playbook has run its course, and it's been a great run. This new "Tar-Mu" is not going to save them.
[References:]
Our Third Story
Walmart May Be Looking to Buy TV Maker Vizio
News from the WSJ yesterday that Walmart is in talks to Buy the TV Manufacturer Vizio. It would be a start, but the Retailer Would Need to Solve the App Problem To Challenge Amazon or Google in a Serious Way in the Ads Business.
Positives:
* Vizio does give Walmart access to a TV operating system, an asset they don't have currently.
* Essentially this allows them to put ads on the homepage of your TV.
Negatives:
* Doesn't solve the content problem. What happens when you click into an app? Walmart loses the advantage, though it will have some understanding of targeting data, but it would have the surface area to display ads within those apps. Unless it either produces the content itself, or buys or invests in the apps.
* Amazon has spent years getting ahead of Walmart in the content business, and has a number of properties including IMDB, Twitch, FreeVee, Amazon Prime.
* Google has YouTube and YoutubeTV. These are monster properties where users are actually spending their time, and they have Google TV operating systems on many TVs as well.
* Speaking of content, the best content is most expensive: studio-produced or live sports like the NFL. Amazon is again ahead of Walmart here. Google's YouTube took over DirectTV's NFL License. Amazon is snapping up deals for exclusive sports broadcast rights.
They still need to try. Despite all this, Walmart has needed a streaming strategy to power the next generation of its advertising growth. Ever since they jettisoned the failed Vudu experiment, they had large app-sized hole in their plan.
For now, Walmart Connect's advertising growth will continue without issue. It's more, what happens 5 years out. And if advertisers have better media ad-buying options with other players, Walmart's share of wallet would start to hit a ceiling.
[References:]
https://www.linkedin.com/feed/update/urn:li:activity:7163508150615146497
[PAUSE]
And Our Last Story
Celebrating the 5th Anniversary of RMW Commerce
I wanted to thank everyone who reads and listens to what I write here on LinkedIn, as well as on my podcast, Youtube, etc. Thank you. When I started the business 5 years ago, it was just about marketing.
I knew if the business was going to work, it would take time to find my voice and that I would need to find sustainable ways to generate new business (other than networking/referrals). Thank you for everyone who has helped get me to this point.
I never expected it to produce as many relationship benefits as it has. The community of people that I work with and speak with each day is amazing. I always love meeting new people and learning what they are great at.
📣 Which leads me to my call for help. 📣 The good news is always have projects that are looking for good people. If you are already independent, and wouldn't mind collaborating on a project (there are at least 3 of you right now that I'm working with actively on projects!) If you are between jobs, or are later in your career, perhaps some interesting consulting projects would be fun.
If you are interested in potentially collaborating ever in 2024 on a project, please reach out and send me a DM.
The projects have tended to look like this, primarily for the middle-market and Enterprise:
1 - Transforming and Modernizing D2C, B2B, or Marketplace-Based Businesses
The variety of work is part of the fun for me. The work is high-level and strategic. We work with management teams, Boards of Directors, and Heads of Digital. We are not "growth hackers", or managing your media spend. (That's for agencies -- though we will keep an eye on your agencies to see if they make sense for you ;-)
2 - Helping B2B SaaS Companies with Strategy
There are a lot of software companies out there, but many need help launching a new product, moving up-market, or growing faster. I've spent most of my career in software. Go-to-Market Strategy, Positioning, Thought Leadership, are all natural strengths.
3 - Media Collaboration
If you have expertise to share, we would love to hear from you. As you may have seen, we have started doing more video events, and have launched our YouTube presence. We always need guests and interesting people that may not otherwise have the opportunity to tell their story. 💕
Now you can. If any of this sounds like it's fun to be a part of, and you have time for side projects (whatever the reason), I'd like to hear from you.
btw - if you haven't seen our Youtube 🎥 content, it is picking up. I'd love to see you there.
[References:]
Now a word from our sponsor Commercetools:
When a multi-billion dollar beauty brand’s eCommerce platform neared the end of its life, the entire business was at risk — including the ability to serve customers. By switching to Commercetools and embracing a more flexible MACH architecture, the retailer’s vision for connecting in-store and personalized shopping experiences became a reality. The brand can now roll out new features within days, securing its position as a modern brand that uses technology to its advantage. If you are being held hostage by your technology platform and your developers have thrown up their hands, tell them to start a free trial at commercetools.com today.
It’s That Time Friends, for our Investor Minute. We have 5 items on the menu today.
First
ContextLogic to Sell Wish to Qoo10 For $173M
ContextLogic plans to sell Wish to Qoo10 for $173 million, monetizing $2.7 billion in net operating losses, and will be staying public under a new ticker. Is Wish a cautionary tale for Temu and Shein? Or Just Poor Execution? What Happens When the Money Runs Out?
Link: https://www.pymnts.com/acquisitions/2024/contextlogic-to-sell-wish-ecommerce-platform-to-qoo10/
Second
AI.Fashion Raises $3.6M in Seed Funding
AI.Fashion, a company specializing in virtual photoshoots, advanced design, and image customization software, has secured $3.6M in seed funding. AI.Fashion helps models and brands and this is definitely the way the market is going. We won’t do fashion shoots the same way in the next 10 years as the last 10 years, thanks to AI.
Link: https://www.finsmes.com/2024/02/ai-fashion-raises-3-6m-in-seed-funding.html
Third
Open Source Headless Commerce builder Saleor closes $8M Round
Saleor, an open source headless e-commerce platform, has secured an $8 million seed-extension round, demonstrating the growing popularity of open source software in the e-commerce sector. Open Source and Headless In One Place. Buzzword Bingo!
Fourth
Private Shopping Club Long Story Short Launches
Long Story Short has launched a private member luxury shopping club and app, charging members $1000 monthly to access a curated selection of luxury goods. Ugh. Paging Rue Gilt.
AND FINALLY …
Salesforce Acquired Automated Commission Management Platform Spiff
Salesforce has acquired Spiff, an automated commission platform for sales teams, for an undisclosed amount, continuing its strategy of purchasing companies in its ecosystem and bringing them in-house.
Link: https://spiff.com/press-release/salesforce-acquisition/
Today’s final word for the week of February 19th, 2024 is “Zero”: As in Extra Zeros. Did You See What Happened During Lyft’s Earnings Call? The company’s stock jumped and then fell after automated trading algorithms and analysts found an extra zero next to its reports of margin expansion — it seemed to surprised the street with 500 basis points of margin expansion, but instead the real number was 50 basis points. Quite a difference! I guess it does tell you what Wall Street values right now. Upside margin surprises. Explains what happened to Shopify stock last week in the other direction
[PAUSE]
That’s all for this week! Till next time Watsonians.....
[PAUSE]
Hi, I’m Rick Watson, CEO and Founder of RMW Commerce Consulting and host of the Watson Weekly podcast - your essential eCommerce Digest.
Our production partner for the series is CitizenRacecar. The show is produced by Jose Baez; Production Manager, Gabriela Montequin.
To hear new episodes of the show every Monday morning, subscribe now at rmwcommerce.com/watsonweekly and wherever you get your podcasts.
