Rising operating expenses represent Shopify’s commitment to expansion, but in the tech industry only time will tell whether 2016’s acquisitions will correspond to a sustained increase in revenue, experts say.

Shopify’s revenues increased by 91.7 per cent over the last three quarters of their 2016 fiscal year compared to the same period the previous year, according to an analysis of its third quarter results.

But Shopify’s increase in revenue was matched by a 91 per cent increase in total operating expenses. Packaged within that increase is their acquisition of Kit CRM and Boltmade, as well as new Shopify facilities being opened in Toronto and Waterloo.

Together, an 88.5 per cent increase in sales and marketing, a 90.5 per cent increase in research and development and a 101.2 per cent increase in administrative expenses resulted in a subsequent 147.9 per cent rise in loss from operations over three quarters ending on Sept. 30, 2016.

A near-doubling of all operating expenses is characteristic of a tech corporation hoping to develop an advantage over its competitors, says Dr. Ian Lee, who specializes in strategic management and international business at the Sprott School of Business at Carleton University.

“I wouldn’t be worried about net loss in the tech industry as long as revenue is increasing and they are creating value for customers and shareholders,” Lee said.

Shopify’s net loss grew by 112.2 per cent over three quarters in 2016 compared with net loss recorded from the same period in 2015.

However, rising net losses haven’t affected investor confidence in the e-sales platform, who went public on the New York Stock Exchange in 2015. In May 2015 Shopify’s stock was valued at just over $20 a share. As of Feb. 3, it stands at $52.12 a share.

Chart representation of Shopify’s share price since IPO on NYSE. by AndrewSavory on TradingView.com

Lee believes that Shopify’s rising share price lends itself to their ability to create value for customers and to differentiate themselves from new entrants into the e-commerce market.

Shopify has made a growing investment in research and development mainly through acquisitions like Boltmade, a product design firm intended to “accelerate the development of the Shopify Plus product offering,” according to a Shopify press release.

Shopify Plus was launched in 2014 to help the core of small and medium sized businesses deal with a higher volume of sales. The mobile application has grown to service over 1,000 merchants and has helped Shopify separate itself from competition and is part of the 119.7 per cent increase in revenue generated from merchant solutions between three quarters ending in 2016 and 2015.

Value in the tech industry is largely dependent upon innovation, but Dr. Alejandro Ramirez believes that Shopify is well-positioned for future success, despite rising operating costs and the cost of recent acquisitions.

“More businesses are realizing they need to be available online an mobile through apps. Shopify sells you a presence that is accessible and easy to use for customers. They have a large hand in that market,” said Ramirez, who teaches about emergent information technologies and social software at the Sprott School of Business.

“The moment in which total operating expenses exceeds revenue, then you have a problem.”

Shopify’s revenues increased by 88.6 per cent in the third quarter of 2016, which as evidenced by an analysis of the company’s most recent third quarter, is 1.1 per cent higher than the 87.5 increase in total operating expenses for the same period.

Ramirez cautioned that Shopify’s success will depend on whether they can maintain a positive differential between revenues and expenses while awaiting a potential sustained increase in revenue and reduced operating costs resulting from recent acquisitions like Boltmade Kit CRM.

Regarding the short and long term financial impact of recent acquisitions, Samantha Tam, a Shopify media representative, declined to provide comment on operating expenses and said “opinion based or qualitative statements cannot be provided until mid-February.”

Shopify’s annual report will be released on February 15, 2017.