Shopify stock (NYSE:SHOP), the stock of the beleaguered e-commerce software behemoth, posted significant losses in the third quarter of 2022. Despite a 22% rise in sales to $1.4 billion, net losses reached $158 million (compared to $1.1 billion in net profits the previous year).
Shares rose over 20% shortly after the release, as profits exceeded analysts’ estimates. Regardless, rising losses aren’t ideal, given the current economic climate. Is it time to liquidate this stock?
There is some intricacy to the net losses.
Before we answer the “to sell or not to sell” issue, let’s fill in some crucial gaps to assess the bottom line. Similarly to the first two quarters of 2022, Shopify saw some significant extraneous elements outside of its own operations drive performance.
First, Shopify is a stock investor and has also suffered during this year’s terrible market. However, since several tech stocks bottomed in June, Shopify’s net loss of $158 million was actually offset by a $172 million unrealized gain on its holdings (primarily made up of Affirm and Global-E Online).
This reverses some of the significant falls in these two equities that Shopify has seen this year. Shopify’s “other income and cost” line item (not part of its core activities and covering those equity investments) now reads as a $2.37 billion loss in 2022, compared to a $3.38 billion gain in the first nine months of 2021.
Now for the bad news: Taking part of the stock market rise into account, Shopify’s loss from operations was really $345 million last quarter, bringing its year-to-date operational loss to $634 million. Shopify said its profits suffered during the quarter as it integrated its purchase of the shipping services business Deliverr (Shopify took over Deliverr in July). This kind of merchant solution often has far lower profit margins than the company’s primary e-commerce software subscriptions. The gross margin for merchant solutions was 37.2% in the quarter, down from 43.2% the previous year.
With merchant services accounting for 72% of total revenue (up from 70% last year) and Deliverr weighing on operations, Shopify stock (NYSE:SHOP) was always going to struggle to break even in its current report.
Allow “omnichannel Shopify” some breathing space.
So it’s time to sell, right? Perhaps. Shopify is, without a doubt, a long-term story, and it remains to be seen how successful it will eventually be.
In other words, Shopify is likely years away from being a successful firm. If that’s not a company you want to buy, this post-earnings surge may be a good moment to cut bait and move on.
However, if you’re looking to establish a long-term (possible) empire, Shopify stock still has a lot going for it. For example, the fact that revenue has climbed by 20% this year is excellent. Other e-commerce businesses’ (including Amazon’s) sales growth has come to a standstill. Stores are reopening, and customers are heading out of their homes to shop.
Overall, If you have the time (at least a few years), Shopify stock (NYSE:SHOP)still provides enough reasons to be patient.
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