Shopify on Thursday announced it is acquiring last-mile technology company Deliverr for $2.1 billion. Deliverr provides management software to manage final-mile deliveries through an asset-light network of warehouse, carrier and last-mile partners.
“Our goal is to not only level the playing field for independent businesses but tilt it in their favor — turning their size and agility into a superpower,” Tobi Lütke, Shopify’s CEO, said in a statement, which accompanied Q1 earnings. “Together with Deliverr, Shopify Fulfillment Network will give millions of growing businesses access to a simple, powerful logistics platform that will allow them to make their customers happy over and over again.”
Shopify (NYSE: SHOP) will pay approximately $1.68 billion in cash and the rest in stock.
Deliverr’s technology offers:
- Inventory receiving and inspection and cross-docking capabilities.
- Inventory placement algorithms that route inventory based on predicted merchant demand.
- Inventory preparation and storage and related freight services.
- Real-time fulfillment optimization across online, brick-and-mortar, B2B and wholesale channels.
Deliverr was founded by Harish Abbott. It provides two-day delivery services to online stores and e-commerce marketplaces, including Amazon, eBay (NASDAQ: EBAY), Etsy (NASDAQ: ETSY) and Walmart (NYSE: WMT).
Shopify under fire for fulfillment network
Shopify has been under fire recently for its fulfillment network. In January, it was reported that Shopify had terminated several fulfillment center contracts, sending its stock price tumbling 14%. A Baird analyst said that Shopify could start building its own distribution warehouse.
“As they reach a ‘fork in the road,’ the timing seems right for Shopify to alter course in fulfillment, the question being in which direction do they turn,” Colin Sebastian wrote in a client note. “In the evolving e-commerce landscape, it’s pretty clear that fulfillment and delivery need to be core competencies, and for Shopify, the sweet spot of an ‘asset-light’ hybrid approach has proven to be a challenge to scale.”
In a statement to Bloomberg in January, Shopify spokesperson Amy Hufft said the decision to terminate contracts was part of the company’s efforts to improve the Shopify Fulfillment Network (SFN).
“We are making improvements to SFN that will make fast fulfillment more accessible and at lower costs, ultimately enabling more merchants and their customers to have the best possible shipping experiences,” she wrote.
Competing with Amazon
Larger competitor Amazon (NASDAQ: AMZN) recently announced Buy with Prime, an offering that allows merchants to offer Prime shipping services even when the customer purchases through the merchant website.
Amy Shapero, Shopify CFO, said merchants will soon see a new badge for their sites that will appear across platforms, including social media and Google. The badge will enable next-day and two-day shipping through Deliverr.
The acquisition of Deliverr will provide Shopify merchants more visibility, the company said, and help manage shipping relationships, providing options through FedEx (NYSE: FDX), UPS (NYSE: UPS) and the U.S. Postal Service, all of which have recently raised shipping rates.
Watch: Building a micro-fulfillment model
In the earnings call on Thursday, Shopify President Harley Finkelstein said the Deliverr acquisition will help Shopify build out its end-to-end solution for merchants.
“We are simplifying logistics along every stage,” he said. “Making this end-to-end supply chain easier for merchants reduces the barriers to [success].”
Finkelstein added that Deliverr will streamline merchants’ supply chains.
“Right now, merchants have to fumble through this maze of freight providers, carriers, 3PLs and what SFN does [is ease this process],” he said, noting that Shopify will have installed its own warehouse management system in all its facilities by the end of Q2. “It pairs perfectly together and what we end up with in the end is this merchant-obsessed platform.”
Fulfilling Shopify’s vision
Deliverr is Shopify’s largest acquisition to date. It will impact profitability in 2022, Finkelstein said, although he didn’t provide specific details.
When word first leaked last week that Shopify was interested in Deliverr, William Blair analyst Matthew Pfau, in a report published by trading website TipRanks, noted it would be “very similar to the original vision of the Shopify Fulfillment Network.”
“Since its founding in 2017, Deliverr has successfully scaled its asset-light fulfillment solution to over 80 warehouses and has integrations built for many of the major marketplaces and e-commerce platforms,” Pfau said. “The acquisition would provide SFN with immediate access to over 80 partner-operated warehouses, as well as critical and proven fulfillment software.”
Deliverr has customers that are competitors to Shopify, but company executives said those clients would still remain a part of Deliverr. The company currently has warehouses within 100 miles of about half of the U.S. population, but a $250 million series E funding round announced in November 2021 was expected to fuel further warehouse growth.
Shopify earnings miss
Shares in Shopify dropped 16% in premarket trading after the company reported earnings of 20 cents per share on an adjusted basis, falling far short of analysts’ 64 cents expectation. Shopify announced a 22% increase in total revenue to $1.2 billion in Q1 with monthly recurring revenue (MRR) of $105.2 million, up 17% year-over-year. Shopify Plus contributed 30% ($31.8 million) to MRR, up from 26% a year ago.
Shopify shares were down to $423.50 in premarket trading and are off nearly 70% year-to-date.
Subscription solutions climbed, rising 8% to $344.8 million as more merchants joined the platform. This also boosted gross merchandise volume (GMV) to $43.2 billion, an increase of 16% from a year ago. Gross payments volume (GPV) rose to $22 billion to account for 51% of GMV in the quarter, an increase over 46% a year ago.
Merchant solutions revenue was up 29% year-over-year to $859.9 million and gross profit dollars increased 14% to $637.6 million. Adjusted gross profit dollars also grew 14% to $646.1 million.
Operating loss was $98 million versus operating income of $118.9 million a year ago. Adjusted operating income was $31.9 million compared with $210.8 million in Q1 2021. Net loss was $1.5 billion or $11.70 per diluted share, compared to net income of $1.3 billion or $9.94 per diluted share in Q1 2021.
As of March 31, Shopify had $7.25 billion in cash, cash equivalents and marketable securities.