Shopify shares drop on earnings forecast; acquisition of Deliverr set for US$2.1-billion

Shopify Inc. SHOP-T reported first-quarter earnings that fell short of analysts’ expectations on profit, revenue and gross merchandising volume, pummeling shares of the e-commerce company more than 17 per cent in midday trading on Thursday.

The Ottawa-based tech firm also announced it will be acquiring San Francisco startup Deliverr Inc. for US$2.1-billion, the company’s largest acquisition in its history, in a bid to expand its warehousing and delivery services. The Globe and Mail reported last month that Shopify expected to finalize the deal ahead of the company’s earnings call.

Shopify said its adjusted net income for 2022′s first quarter was US$25.1-million, down from US$254.1-million 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.

Shopify shares were trading at about US$406 as of 12 p.m. on the New York Stock Exchange, marking two-year lows for the company.

Competition between Shopify and Amazon heats up as one company plans billion-dollar acquisition and other announces new strategy

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. That’s behind analyst projections of US$46.5-billion.

“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,” said Samad Samana, managing director and analyst at Jefferies Group LLC, in a note to clients on Thursday.

Tyler Radke, an analyst for Citigroup Inc., said it is notable that commentary about new merchants has been revised lower by Shopify, despite the company providing “less specific guidance across key metrics” in recent quarters. “We expect the stock to trade down given the significant miss on GMV, profitability and continuation of headwinds into Q2.”

Shopify’s stock price has collapsed by more than half from 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.

This year, the company became the worst Canadian performer on the S&P/TSX Composite Index, dropping down more than 70 per cent, and losing over $155-billion in market value.

It is part of a global rout in technology stocks that has left few e-commerce companies unscathed, as consumers are gradually turning away from pandemic trends and habits, while surging inflation raises questions about consumer spending. Amazon.com Inc. and Etsy Inc. also fell short in their recent quarterly financial results.

Tom Forte, managing director and senior research analyst at D.A. Davidson, said shares at e-commerce companies are under pressure due to the overlapping combination of pandemic-fuelled growth and the emergence of macroeconomic challenges amid Russia’s invasion of Ukraine.

“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,” Forte told The Globe in a statement Thursday.

Amy Shapero, chief financial officer at Shopify, said the company is fighting against consumer hurdles related to the return of traffic to physical stores, while grappling with labour shortages and supply-chain issues.

“We’re getting closer to what would be deemed normal, but there is still some rebalancing happening,” Ms. Shapero told analysts at the earnings call. “We’re addressing all of these issues at the same time.”

Still, Shopify remains a strong force in the increasingly crowded e-commerce sector. Last year, over two million merchants had processed US$175-billion of gross merchandise volume.

“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.

More to come

Your time is valuable. Have the Top Business Headlines newsletter conveniently delivered to your inbox in the morning or evening. Sign up today.