Shopify Inc. SHOP-T has posted its slowest quarterly growth in seven years. The Ottawa company’s disappointing earnings and revenue added to a global rout in e-commerce companies and deepened concerns about consumer spending.
The results were a rare miss for Canada’s tech leader, which fell short of analysts’ expectations for the first time since it went public in 2015. Shopify’s share price sank 14 per cent on Thursday, part of a broad sell-off led by technology stocks that left the Nasdaq Composite index down 5 per cent.
The company’s adjusted net income for 2022′s first quarter came in at US$25.1-million, a fraction of the US$254.1-million it earned in the same period last year. On a per-share basis it reported adjusted earnings of 20 US cents, far short of analyst projections for 64 US cents. Revenue for the company was US$1.2-billion, up 22 per cent, but that also lagged expectations of US$1.25-billion.
Also on Thursday, Shopify confirmed a deal to acquire San Francisco startup Deliverr Inc. for US$2.1-billion. It’s the company’s largest acquisition, part of a push to expand its warehousing and delivery services.
“While investors were braced for a shortfall, particularly after weakness at other e-commerce companies, SHOP’s Q1 still fell short of the lowered bar,” Samad Samana, managing director and analyst at Jefferies Group LLC, said in a note to clients.
As consumers gradually turn away from pandemic trends and habits, few e-commerce companies are unscathed. Surging inflation is raising concerns, and consumers are cutting back on discretionary spending. Meanwhile, the war in Ukraine is adding to the uncertainty.
Online spending took off during the pandemic, when consumers were stuck at home due to public health restrictions and flush with cash not spent on vacations and entertainment or from government stimulus measures. Those trends gave e-commerce leaders such as Shopify a big boost, but they have largely reversed. Mastercard said on Thursday that U.S. e-commerce sales fell 1.8 per cent in April versus a year earlier, while in-store sales jumped 10 per cent “reflecting consumer demand to get out.”
E-commerce companies such as Amazon.com Inc. and Etsy Inc., for example, have also posted weaker-than-expected quarterly financial results recently, and their share prices have plunged.
“We believe, collectively, their share prices may remain under pressure until the macroeconomic challenges subside and when the Federal Reserve in the U.S. stops raising interest rates,” said Tom Forte, managing director and senior research analyst at D.A. Davidson.
The price of Shopify’s stock has collapsed by more than three-quarters since its late 2021 peak. Two years ago, Shopify stock traded for about $500 a share on the Toronto Stock Exchange. It went on to more than quadruple in price, hitting a record high of $2,228.73 late last year, before the bottom fell out. Shares closed at $529.63 Thursday.
Gross merchandise volume (GMV), a figure that shows the value of sales through Shopify’s platform, grew 16 per cent in the first quarter from a year earlier to US$43.2-billion. But that was also short of analyst projections of US$46.5-billion.
“We’re getting closer to what would be deemed normal, but there is still some rebalancing happening,” Amy Shapero, chief financial officer at Shopify, told analysts on Thursday. “We’re addressing all of these issues at the same time. … We will get there.”
While e-commerce sales dropped in April from a year earlier, they were still 92 per cent higher compared with April, 2019, Mastercard noted. That shows the pandemic bubble of online shopping has not yet burst for e-commerce companies, Mr. Forte said.
“While cognizant of the near-term challenges, we see a bright future for these companies and expect them to continue to exploit the global opportunity for e-commerce within their respective niches,” Mr. Forte said.
At Shopify, that e-commerce niche is increasingly evident. Richard Tse, a financial markets analyst for the National Bank of Canada, calls that niche “logistics services for merchants,” which includes warehouses, delivery and shipment, services Shopify has not yet been able to provide adequately for its customers.
To that end, Mr. Tse said, the deal to acquire Deliverr will allow Shopify to expand upon its promised growth by tapping into a nationwide fulfilment network across the United States. “Despite the stock price reaction today, we continue to see considerable upside potential in the name going forward from outsized growth via multiple growth drivers,” he said in a note.
“While we see this acquisition bringing that capability, it also onboards a talent pool with fulfillment expertise, something we believe was challenged by turnover over the past 12 months.”
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Temur Durrani