Shopify sells its logistics business

Fintech Headlines for May 4, 2023: Shopify sells its logistics business to Flexport, Coinbase returns to profitability, and Block's Cash App continues posting strong growth

May 05, 2023

Hi!

Welcome to the “Popular Fintech” newsletter! It was a busy day yesterday with Shopify, Shift4 Payments, Block, Coinbase, and BILL reporting their first quarter 2023 results. A few highlights:

  • Shopify agreed to sell its logistics business to Flexport,

  • Coinbase returned to profitability (on an Adjusted EBITDA basis), and

  • Block’s Cash App continues posting strong growth across all metrics

Shopify to Sell Its Logistics Business to Flexport

When Shopify (NYSE: SHOP) rescheduled its earnings call to the morning, it became apparent that the company intends to make an important announcement. Thus, Shopify announced that it has entered into a definitive agreement to sell its logistics business, also known as “Shopify Fulfillment Network”, ”including the people, technology, and services related to these operations” to Flexport. As per the terms of the transaction, Shopify will receive a 13% equity stake in the company, and Flexport will become the official logistics partner for Shopify. This deal is expected to close in the second quarter of 2023, subject to regulatory approvals.

According to Crunchbase data, Flexport, a technology-enabled global freight forwarder and logistics platform, raised $2.4 billion in total funding, including $935 million in its latest Series E round in February 2022, which valued the company at $8 billion. Shopify participated in that round alongside Andreessen Horowitz; thus, it was a minority shareholder in Flexport since last year. As a result of the transaction, Shopify will lay off 20% of its workforce, which is the second round of layoffs that the company is making. The company laid off 10% of its global workforce last year.

Shopify started experimenting with shipping and delivery in 2015, when the company launched Shopify Shipping, a service offering merchants discounted shipping with local postal services, such as UPS and DHL. In 2019, the company made a bigger bet on the logistics business by launching the Shopify Fulfillment Network, a network of partner-operated and fully-owned fulfillment centers across the US. Shopify then acquired a warehouse robotics company 6 River Systems for $450 million in 2019, and a fulfillment technology provider Deliverr for $2.1 billion in 2022, as well as planned to invest an additional $1 billion in the development of the fulfillment service.

Coinbase Returns to Profitability

Cryptocurrency exchange Coinbase (NASDAQ: COIN) reported its first quarter 2023 results yesterday. The company beat expectations by posting a narrower-than-expected loss and a smaller-than-expected revenue decline, as trading volumes stabilized. Coinbase reported a net loss of $79 million, compared to a net loss of $430 million a year ago, and a net loss of $557 million in the previous quarter. Moreover, the company returned to profitability on an Adjusted EBITDA basis. Thus, the Adjusted EBITDA (EBITDA adjusted for stock-based compensation and one-time expenses) for the quarter was $284 million. The revenue for the quarter came in at $736 million, down 37% compared to the first quarter of 2022, but up 22% sequentially.

Improved profitability of the company reflects the stabilization of the trading volumes, as well as cost optimization measures. Thus, the total trading volume on the platform was $145 billion, down 53% compared to a year ago, but flat sequentially. Operating expenses (excluding transaction costs, which are driven by trading volumes) were $800 million, down 45% from a year ago, and down 27% sequentially. Operating expenses for the quarter include $144 million in restructuring charges related to layoffs. Thus, in January 2023, Coinbase laid off 20% of its workforce or 950 employees. This came on top of 1,100 employees that were laid off in June 2022.

Block’s Cash App Continues Posting Strong Growth Across All Metrics

Block, Inc (NYSE: SQ) the parent of Square and Cash App, reported strong first quarter 2023 results, driven by continued growth in its Cash App business. Total company’s net revenue for the quarter was $4.99 billion, up 26% YoY. Gross profit increased by 32% YoY to $1.71 billion. Cash App contributed $931 million in gross profit, which represents an increase of 49% YoY, and Square contributed $770 million, which represents an increase of 16% YoY. The company reported a net loss of $17 million and an Adjusted EBITDA of $368 million. Cash App users deposited $61 billion to their Cash App accounts during the quarter, up from $48 billion a year ago. Cash App had 53 million monthly transacting users in March, up from 46 million a year ago.

Last month, Hindenburg Research, a short seller famous for its bets against the EV manufacturer Nikola, and Indian conglomerate Adani Group, published an investigation into Block. Hindenburg, which, simultaneously with the publication disclosed a short position, accused Block of inflating Cash App user growth, understating customer acquisition costs, facilitating fraudulent and criminal transactions, as well as “disregarding Anti Money Laundering rules.” Hindenburg’s research involved “dozens of interviews with former employees”, as well as listening to a lot of hip-hop music (the company even made a video compilation of Cash App mentioned in hip-hop songs, which, they argued, proves fraudulent and even criminal usage).

There is so much in common between Block (NYSE: SQ) and PayPal (NASDAQ: PYPL). Both companies have merchant acquiring (Square and PayPal Checkout), consumer payments (Cash App and Venmo), and Buy Now Pay Later (Afterpay and PayPal’s Pay in 4) businesses…and both are underperforming NASDAQ Composite this year. PayPal will report its first quarter 2023 earnings on Monday, May 8, after the markets close.

That’s it for today! Thank you for reading and see you tomorrow!

Jevgenijs

Cover image source: Shopify

Disclaimer: Information contained in this newsletter is intended for educational and informational purposes only and should not be considered financial advice. You should do your own research or seek professional advice before making any investment decisions.