November 18th, 2024: Shopify reported Q3 2024 earnings, Klaviyo reports better Q3 earnings, new RMW Commerce event being held in January, BigCommerce trying to escape Alabama mud like My Cousin Vinny
It’s November 18, 2024 and this is the Watson Weekly - your essential eCommerce Digest!
Today on our show:
Shopify Reported Q3 2024 Earnings
Klaviyo Reports Even Better Q3 Earnings
New RMW Commerce Event Being Held in January
BigCommerce Trying to Escape the Alabama Mud Like My Cousin Vinny
- and finally, The Investor Minute which contains 5 items this week from the world of venture capital, acquisitions, and IPOs.
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[PAUSE]
BUT FIRST in our shopping cart full of news….
Shopify Reports Q3 2024 Earnings
Here are the details:
* GMV up 24%
* Revenue up 26%, (intl 36% y/y)
* MRR up 28% (promising = leading revenue indicator)
* Gross margin flat to slightly down ~51.7% (down 90bps)
* Operating income doubled y/y
* Enterprise: (It's a Slog But We Are Slogging)
-- fashionphile, reebok, beauty counter notables
-- composability message
-- "off platform" shop pay button or shopify checkout = on running, Victoria's Secret notables.
-- sales cycles take 6-12 months. impl takes 6-12 months. we are only 18 months into our journey why you don't see more. we are here for the long-term.
-- checkout is the biggest wedge
* Payments: (On a Tear)
-- Shop Pay grew 42% y/y = $17B GMV (Shop Pay now 40% GPV)
-- can launch shop-pay in 3 weeks.
* Subscriptions: (Notable)
-- up 26% y/y. Plus now 31% MRR.
-- gross margin 82.3%
* Merchant Solutions: (Chugging)
-- Gross margin 39.7%
* POS: (Scaling)
-- offline GMV up 27% y/y
-- Laura added 150 stores, largest POS migration yet.
* B2B: (Look Out Market)
-- B2B GMV grew > 145% y/y
-- getting early wins in industrial/scientific and b2b native companies
-- closing feature gaps quickly (hello bigcommerce is it too late for you?)
-- see a $14B TAM
One of the funniest things I like to track on earnings calls is euphemisms. For Shopify, they refer to liking their "size and shape". What does this mean?
* Size: don't over-hire.
* Shape: maintain strict ratios of crafters to managers so we stay lean and don't go pear-shaped
This is what it means. How is OpEx staying fit? See these Y/Y Numbers:
* Sales & Marketing: 12% y/y
* R&D: 6% y/y (basically flat)
* G&A: -17% y/y (support layoffs = AI roadkill? [guess])
In any event, this means that as the company adds 24% in gross profit dollars y/y, its operating expenses are growing at only 7%. Good trends. Opex as % revenue = 32%. 300-400bps improvement y/y.
Odds and Ends:
* If Shopify can figure out a way to expand gross margin without raising prices, it will be like a turbo-charged engine was added. As it stands, payments gross margins seem to slightly degrade over time. Most promising avenues? Related to Shop App and Customer Acquisition. Gonna be a while.
* Shopify mentioned they were in Gartner Magic Quadrant. Um... the new one or the old one? Asking for a friend.
* With MRR trending ahead of revenue, this could indicate revenue acceleration coming.
* Won't develop ERP or CRM. Enterprise merchants bring this. (No PIM mention - possible?)
* Merchant solutions (payments mostly) % revenue holding steady at 71.7%
* Off-platform Shop Pay and Shopify Checkout seems like a slog. 1-2 wins better than zero wins however.
Milk Carton Alert:
* Shopify Sidekick. Side-kicked to the curb?
* Shop App: Not much to report, expected more. "shop cash: sometimes for some merchants its impactful." not exactly a ringing endorsement
[References:]
Our Second Story
Klaviyo Reported Even Better Q3 2024 Earnings
Last week Klaviyo reported Q3 earnings and while everything was not 100% rosy, there is a lot to like:
* A well-regarded product suite.
* 34% total revenue growth y/y. EMEA growing 45% y/y. (!!)
* An enviable > 110% Net Revenue Retention rate.
* SMS adoption going well -- 80% of top 50 customers are using SMS.
* An increasingly multi-product portfolio.
* A growing third-party ecosystem of over 400 technology connections.
And oh, did I mention this other key fact?
* Klaviyo has a big slow competitor to take massive share from in Salesforce.
That is what I call a massive tailwind. Klaviyo calls it a "durable trend" where a lot of folks are modernizing off old technology.
Hello, Salesforce Marketing Cloud. Did I say hello? I actually meant, goodbye and good riddance.
Some other tidbits:
* The company is expanding its management team with a new Chief Product as well as a Chief Technology Officer. Hope this goes well.
* Mostly competing against single-channel competitors. Attentive has something to worry about here, even though the product is very well-regarded. Consolidation is a strong trend in the market right now.
Economic guidance:
* We are in a value-oriented economy. Especially SMB customers careful about how many emails/SMS they send. Retention is still fantastic for Klaviyo, however, across all segments. Not all SaaS can say this right now.
* Expecting 2025 to look like the second half of 2024.
All in all, a lot to like here. I am guessingWall St expected higher guidance? To be honest I am not a stock watcher. I am a strategy and performance watcher.
Hard to find a lot to worry about in the results. My previous biggest worry for Klaviyo was cross-sell and up-sell. This has been solved from where I sit.
In fact, in a consolidating and modernizing world I see few companies that will benefit more from this trend than Klaviyo -- and that includes Shopify itself.
[References:]
Our Third Story
New RMW Commerce Event Being Held in January
Oh no he didn't! RMW Commerce is hosting its first ever exclusive, limited seating event - no NRF ticket required.
Date: Sunday, January 12, 2025
Time: 4:00 PM - 6:30 PM Eastern
Location: NYC TBD to be revealed
Open bar and apps
👇 👇 To "Save the Date" and register your interest, check the link below. 👇 👇
Agenda:
1 - Keynote by yours truly (topics below). Content will be nowhere.
2 - Panel discussion with brand leaders
3 - Exclusive live-taping of Watson Weekend with Jessica Lesesky, Michael Jones (CEO, Candlescience - former eBay, Shutterfly, ChannelAdvisor)
4 - Wrapped by a special Kaplan's corner with the always magical Nick Kaplan
Mingle with your fellow brand + retail leaders.
Simply, you won't want to miss it. It will be the see and be-seen event of NRF. What's better than watching a Watson Weekend, with topics including:
- @#$%@# is happening at Starbucks?
- eCommerce grifters, what to do about them?
- Investor and private equity update (from a CEO who exited to an Apollo-backed company)
- What people miss about marketing and customer growth, from one of the best marketing + product leaders in the business.
👇 👇 To "Save the Date" and register your interest, check the link below. 👇 👇
Some more about the Keynote agenda:
2025 planning is hot on everyone's minds. The event will kickoff The Five Forces are:
1 - Cheap Consumer & The Great Trade-Down
2 - Marketing is King, Merchandising is King
3 - The Generative Brand: Retail in the Age of AI
4 - The Beginning and the End: Equity and Exits
5 - The Emporer's New Brand Playbook
Panel discussion to follow the keynote will include brand leaders to be announced.
The Summit represents the kickoff of a series of exclusive content throughout 2025 around these themes. See you there :-)
[References:]
[PAUSE]
And Our Last Story
BigCommerce Trying to Escape the Alabama Mud Like My Cousin Vinny
Anyone who watched Marissa Tomei (Mona Lisa Vito) in My Cousin Vinny knows what happens to cars (particularly those without positraction) when stuck in the Alabama mud.
You step on the gas, one tire spins the other tire does nothing.
BigCommerce management has concluded the spinning tire is the product/technology organization. And the "doing nothing" tire is the Sales and Marketing teams.
A synopsis of GTM issues I heard on the call:
* Low awareness causing them not to see enough deals.
* Not enough sales quota or enough reps, or both.
* Not enough pipeline, partricularly in B2C and SMB.
* Reps they do have were chasing some of the wrong deals due to misaligned comp.
* Can't upsell or cross-sell easily without a rep's involvement.
* Sales teams were too generalized and not specialized by segment.
* Not deep enough eCommerce expertise.
Other than that, how was the play, Mrs. Lincoln?
That's not to say the product teams got off unscathed:
* Feedonomics and Makeswift were not well integrated.
* Feedonomics didn't have a self-service option.
* B2B probably took too long to get integrated (seeing as they just got a menu item a few months back).
New CEO Travis Hess is looking to install positraction on the vehicle. We will know when that happens when BigCommerce reaches its "Rule of 40" goal. What's the Rule of 40?
A popular SaaS founder metric which is the sum of revenue (or ARR) growth % and profit margin. I would estimate they somewhere around 20 (or a bit higher generously) at the moment, with 7 of that 20 coming from revenue growth. This means BigCommerce needs to grow probably 3x as fast as they are now while maintaining profitability levels in order to hit their desired number.
In short, this is at least a three-year journey.
If there was one thing that did pass the rule of 40 on this call, use of the word "Discerning". What's that now?
As in, BigCommerce is for discerning customers looking for optionality, flexibility, and growth.
You still hear echoes of "open SaaS" in the composability messaging.
What I did not hear strongly is what their most important buyers are prioritizing, why that is, and how BigCommerce was differentiated along those buyer priorities.
In short, we need to discern what discerning really means.... and if discerning is a shrinking niche or a truly expanding market opportunity. After all, it's complicated to be discerning. It's complicated to sell discerning.
Shopify is selling the "everything to all people" message - just get on the bus we will figure it out with you as we go.
In peanut butter terms, BigCommerce is preaching the "Choosy moms choose Jif" message.
Speaking of peanut butter, with a market focus of B2C, B2B and SMB here's hoping the company's precious resources aren't spread as thin as peanut butter.
My suspicion though is still some of these other segments are a kind of cover for their true focus: B2B.
[References:]
It’s That Time Friends, for our Investor Minute. We have 5 items on the menu today.
First
Pinstripe Reimagines Secondhand Clothing Sales
New York-based Pinstripe connects empty retail spaces with excess clothing, addressing sellers' pain points through in-person sales in partner stores or via delivery. It is an evolution in a sector from marketplaces and platforms like Trove to a hybrid model utilizing stores and technology.
Second
UK-based B2B Platform RedCloud Holdings Files For US IPO
UK-based B2B platform RedCloud Holdings has filed for an initial public offer (IPO) that could raise up to $86M in capital. The company operates a platform that services consumer packaged goods trade between brands, distributors, and retailers in fast-growing emerging markets. Retailers can leverage data and AI tools to make better purchases and inventory decisions from brands and distributors. The company generated $30M in revenues for the past twelve months ending in June 2024.
Link: https://www.sec.gov/Archives/edgar/data/2027360/000149315224043717/formf-1.htm#sw_002
Third
Marketing Tech Platform Insider Raises $500M In Series E Funding
Insider, an enterprise omnichannel experience and customer engagement marketing platform, has raised $500M in Series E funding. The company enables brands to deliver personalized customer experiences across digital channels. It will use the capital to invest in its technology and AI solutions, grow its sales and marketing in 28 countries, and explore strategic acquisitions. Insider claims to be the first company to combine predictive AI with customer experience. One wonders with a personalization platform will do with half a billion dollars, but here we are.
Fourth
Bluecore Acquires AI Shopping Assistant Alby
Bluecore, a retail marketing platform, has acquired AI shopping assistant Alby for an undisclosed amount. This acquisition will enable Bluecore to offer AI agents as part of its solutions; full integration with Alby will be complete and available to retailers in Q1 of 2025. Note that a Bluecore co-founder left the company to join startups and start Alby who his old company has now acquired. Congrats to the Bluecore team on joining the AI revolution!
AND FINALLY …
Athleisure Brand Vuori Raises $825M in Share Sale
Activewear maker Vuori has raised $825M via a secondary share sale at a higher valuation of $5.5 billion after raising $400M in 2021 at a $4 billion valuation. The new funding will be used to open new retail stores as the brand plans to exceed 100 stores in 2026 and further develop new key markets in Europe and Asia. Vuori is an outlier as they are selling premium athleisure that retails $100 leggings and $64 sports bras at a time when apparel brands are facing headwinds.
Today’s final word for the week of November 18, 2024 is Holiday: We’re in the chute now folks.
With apologies to Richard Marx.
Hold on to the night
Hold on to the memories
If only I could give you more…
And with that…
That’s all for this week! Till next time Watsonians.....
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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.
