What Does Shopify Do?

By Motley Fool Staff Markets Fool.com

E-commerce platform Shopify (NYSE: SHOP)is getting more and more attention with investors as it continues to post fantastic earnings. But what does it actually do?

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In this clip from Industry Focus: Tech, Motley Fool tech analyst Sarah Priestley explains how Shopify makes money, some of its most impressive clients, and some of the most important numbers investors should know to put this company in context.

A full transcript follows the video.

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This podcast was recorded on Feb. 10, 2017.

Sarah Priestley: I am very bullish, like a lot of Fools here, on Shopify. I would like to give you a little bit of background about the company and tell you what they do. I apologize if you already know.

Gaby Lapera: No, I don't actually. Tell me what they do.

Priestley: Shopify IPO'd in 2015 for $1.27 billion. Their current market cap is $4.9 billion, so, still pretty small. The company was founded in 2006 by Tobias Lutke. I think that's how you say his name. I'm very sorry if that's not how you say his name.

Dylan Lewis: That sounds right.

Priestley: So, he is now chairman and CEO, but originally the company was founded as a snowboarding company. But they found they couldn't find any online store software that would work for small companies at the time. You're talking around 2004, remember if we can. It was all for big companies that wanted to establish an online presence. There was nothing that was custom to small companies. So, they discovered this glaring hole in the e-commerce market, and they believed that future businesses will be created online and almost online only. And obviously, that was pretty futuristic of them. That's exactly what we have now, if you look at Etsyand a lot of other companies. So, in 2006, they launched Shopify. Lutke described Shopify as the only platform you need to build your empire. I would say, given their offerings, that's pretty true. The company has 325,000 merchants currently using their platform. There's mostly small and medium businesses, but there's some bigger names that you'll recognize. There's some Amazonweb stores, Tesla, Johnny Cupcakes...does anybody know them?

Lewis: The Boston chain? Yes! I know Johnny Cupcakes, having spent five years in Boston.

Lapera: That sounds like a mob member.

Lewis: Well, they're T-shirts, but also, it's kind of a cupcake place, too? It's something like that.

Priestley: I know the way that they present their T-shirts is that they wrap them and they give them to you in a cupcake box, which I think is pretty cool. If they do cupcakes, I will definitely sample them, too. [laughs]

Lewis: Yeah, that's a very popular joint on either Boylston or Newbury Street, but one of the main shopping strips in Boston. I don't know if they have any other locations.

Priestley: I'm there next weekend. I'll check it out.

Lapera: I'm not kidding. Johnny Cupcakes sounds like someone who will whack you.

Lewis: We'll take you out through the back, go see Johnny Cupcakes. [laughs]

Priestley: Wikipedia Shop also uses them, and the Los Angeles Lakers. But the important thing with this is that when you go on to these sites, you would not know that you are using the Shopify platform, and that's completely deliberate. Shopify says, "Our job is to make our merchants look their very best in every interaction they have with their customers," and I would say that's completely true. When you go on their sites, you have no idea. It's not branded with Shopify. They're giving merchants everything that they need behind the scenes.

So, what do they actually do? It's a cloud-based platform and it allows customers to add to the functionality that they need to sell on multiple platforms, so, web, mobile, social media, Facebook, Twitter, Pinterest, and even physical retail locations. They offer analytics in real time, and they really offer a plethora of things, but I'll just touch on a few. Sales analytics by channel and customer, Inventory management, discount and gift cards, order processing, customer management -- so, this is really data tilling to better understand your customer preferences and build relationships -- and, importantly, payment processing. In the U.S., Canada, the U.K., and Australia, that's fully integrated with their platform. Think PayPal, Square, those kinds of companies. And where it's not available, or the company has a preferred payment processing partner like Visa, which I'm sure you're very familiar with, the platform connects with those payment gateways seamlessly.

You can do it all by yourself if you're a merchant. You can set up online. Desktop and mobile, they have 150 customizable storefront designs, and they are optimized for SEO and social media. They also serve physical locations with point of sale. You get all the same integration with all of the analytics that you would if it was online. So, yeah, they make it super easy for you to operate as a small to medium[-sized] business and grow to be a huge business, too.

Sarah Priestley has no position in any stocks mentioned. Dylan Lewis owns shares of Facebook and Tesla. Gaby Lapera has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Amazon, Etsy, Facebook, PayPal Holdings, Shopify, Tesla, Twitter, and Visa. The Motley Fool has a disclosure policy.