Shopify stock spikes as company posts higher quarterly revenue and lower net loss than anticipated

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Shopify Inc. posted higher quarterly revenue and lower net loss than financial analysts had anticipated, providing some relief to shareholders who have seen the e-commerce company’s stock lose more than 75 per cent of its value during this year’s technology-sector slowdown.

On Thursday, Shopify SHOP-T reported its third-quarter revenue was up by nearly 22 per cent from the same period last year, to US$1.4-billion, whereas analysts had expected US$1.3-billion. The Ottawa company reported a loss of 2 cents a share on an adjusted basis, much lower than the analyst consensus estimate of 7 cents.

The price of Shopify’s stock has collapsed by more than three-quarters since its late 2021 peak. But shares rose sharply on Thursday after the earnings release, climbing over 17 per cent from the day prior to reach $46.22 on the Toronto Stock Exchange.

Company executives told analysts on Thursday that the financial results reflect changes Shopify has made as it works to navigate a global rout in the retail sector and the technology industry in general.

E-commerce has slowed significantly this year, because consumers have cut back on discretionary spending and turned away from online shopping habits they embraced early in the pandemic. At the same time, tech companies have suffered as a result of a broad stock sell-off.

Shopify is one of only a handful of large tech companies with encouraging news for shareholders. Meta Platforms Inc. (which runs Facebook and Instagram), Google parent Alphabet Inc., Microsoft Corp., Apple Inc. and Amazon.com Inc. all announced third-quarter financial results that disappointed investors this week. Amazon’s share price fell in after-hours trading on Thursday.

“In a week full of mediocre and disappointing results from tech, Shopify is proving to be the good news story here,” said Tom Forte, managing director and senior research analyst at D.A. Davidson, a Montana-based investment bank.

“I think it’ll certainly be challenging ahead. There’s no denying that. But there is a sizable improvement we’re seeing here, especially compared to the last two quarters.”

Shopify began the year with its slowest quarterly growth in seven years, falling short of analysts’ expectations for the first time since it went public in 2015. In the second quarter, it posted a massive loss and warned of more operating losses ahead, calling 2022 “a transition year” marred by ailing e-commerce trends and persistently high inflation.

Since then, Shopify has cut down its work force by more than 10 per cent and launched a new compensation scheme to give employees more ability to choose the mix of cash and equity they are paid. It has been focusing on new avenues of growth, such as an expansion of its offerings for brick-and-mortar stores. The company has also launched new tools intended to lure creators and influencers to its platform.

Shopify executives pointed to these moves from the past quarter as reasons the company beat expectations.

“This is a company that thinks deeply about managing expenses, growing revenue, and, ultimately, this is a company that likes to be profitable,” Shopify’s president, Harley Finkelstein, told analysts in a conference call on Thursday.

Mr. Finkelstein noted an increase in the company’s gross merchandise volume (GMV), a figure that shows the value of sales through Shopify’s platform. Shopify’s GMV reached US$46.2-billion in the third quarter, up 11 per cent from last year, though slightly behind the consensus analyst estimate of US$46.8-billion.

But analysts say it is too early to know whether Shopify’s changes will improve its long-term outlook.

“We applaud [Shopify’s] efforts to cut costs quicker than most, which is already translating to better-than-expected margins and should allow growth to outpace expenses in Q4,” Angelo Zino, senior equity analyst at New York-based CFRA Research, said in an e-mail. “But we remain cautious of the macro landscape.”

Amy Shapero, Shopify’s chief financial officer, said in her last call with investors and analysts before a new executive takes her place that the company continues to face challenges. “From an operational perspective, we recalibrated our organizational structure, [and] successfully rolled out a new compensation framework. All of this has been great,” Ms. Shapero said.

“But higher inflation and rising interest rates will continue to negatively affect the consumers’ purchasing power of discretionary goods and services.”

Ms. Shapero projected an adjusted net loss for the rest of the year, and warned that the fourth quarter will bring net losses similar to those in the third quarter.