Direct-to-consumer ‘is no longer a fad,’ Shopify COO says after strong Q4 earnings report

Shopify collected the big bucks during the holiday shopping season, and that's indicative of emerging retail trends, Chief Operating Officer Harley Finkelstein told CNBC's Jim Cramer on Wednesday.

The e-commerce platform, which supplies businesses with means to sell products online, recorded almost $3 billion of global sales over the Black Friday to Cyber Monday shopping period last November, a 61% increase from the year prior.

“That is the example where direct-to-consumer is no longer a fad,” Finkelstein said in a “Mad Money” interview. “It is now a steady state, and it's being powered by Shopify. We're at the center of that.”

Direct-to-consumer has emerged as a key retail strategy in the age of online shopping, where brands eliminate the middleman and engage directly with consumers. Nike is one big name that has invested heavily in its direct-sales business, and Tesla Motors is another that has taken advantage of the trend.

The holiday numbers are a part of Shopify's better-than-expected fourth-quarter earnings report. The company grew its top line by 47% year over year to $505.2 million in the December quarter, which smashed the $482.1 million that analysts estimated. On the bottom line, Shopify made 43 cents per share — up more than 80% from a year ago, when analysts were forecasting 24 cents.

“We think we can be the entrepreneurship company. While other companies are trying to build empires, we are arming the rebels,” Finkelstein said. “And, honestly, the rebels are winning.”

For the full year, Shopify's gross merchandise volume, which measures the total value of merchandise sold on the website, clocked in at $60.8 billion, a 49% improvement from 2018. The company's revenue, which is made up of merchant and subscription fees, came in at almost $1.6 billion for the year, a 47% increase. With 2019 earnings coming in at 46 cents per share, Shopify has turned a profit three years in a row.

“This is the story of independent brands and entrepreneurs doing really, really well, and consumers are voting with their wallets,” said Finkelstein, who has been second-in-command at the Canadian internet company since 2010. “I think Shopify is powering the entrepreneurship movement.”

Shopify is calling 2020 an investment year. The company is injecting money into growing internationally, targeting larger brands with a higher price point called Shopify Plus and building fulfillment centers in the United States, its largest market.

Shopify set aside $1 billion to develop its warehouse infrastructure to stay in the game with online retailers such as Amazon and eBay. The warehouses will be outfitted with machine-learning and robotics, powered by its $450 million acquisition of 6 River Systems.

“But let's be clear: We are still in the early stages of that,” Finkelstein explained. “We have to get fulfillment right, because the small businesses and brands … need to compete with the big businesses, and we think we're the company that can help them with that.”

Shopify shares popped as much as 20% off its earnings report Wednesday morning. The stock would come back down to earth during the trading day before closing at $531.25, up almost 8% from the day prior.

The stock has surged more than 33% year to date and more than 202% over the past year.

Disclosure: Cramer's charitable trust owns shares of Amazon.com.

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