Shopify Stock Sinks as Investors Worry Over Big Spending In Weak Economy

Shopify Stock

Shopify stock 16% on Thursday after the Canadian tech giant’s weak forecast for first-quarter revenue and higher cost projections amplified investor concerns over aggressive investments in an economy facing slowing growth. As the company’s forecast for revenue for the March quarter fell short of expectations, Shopify’s stock fell sharply on Thursday. As compared to its previous closing price of $53.39 per share, it traded on Thursday between $44.31 and $46.92.

Pandemic-related disruptions propelled the company to briefly become Canada’s most valuable firm before online demand eased as economies reopened and forced it to launch new products, boost investments and focus on social media integration.

Such investments and Wednesday’s warning on macro-challenges have spooked investors concerned about profitability.

Oppenheimer analyst Ken Wong said he was worried about Shopify’s “noncommittal spend” and an operating loss projection of about $85 million that could dampen investors’ expectations for profitable growth this year.

Shopify Stock: ‘High Teens’ Revenue Growth

For the first quarter of 2023, the company predicted revenue growth in the “high teens.” Analysts had projected more than 20% revenue growth.

“We believe that the revenue guide implies that Q1 gross merchandise volume will be weaker than expected,” Jefferies analyst Samad Samana said in a note to clients. “Management did note the uncertain macro (economy) was factored into the outlook.”

Shopify Revenue

Shopify (NYSE:SHOP) reported revenue for the December quarter of $1.7 billion, an increase of 26%, and slightly higher than the $1.65 billion consensus estimate from Wall Street. The company’s platform’s gross merchandise volume increased 13% to $61 billion, exceeding the street’s prediction of 10% growth.

Below are the earnings highlights for Shopify Inc (NYSE:SHOP):

Earnings: -$623.7 million in Q4 vs. -$371.3 million in the same period last year. EPS: -$0.49 in Q4 vs. -$0.30 in the same period last year. Excluding items, Shopify Inc reported adjusted earnings of $91.0 million or $0.07 per share for the period.

Analysts projected -$0.01 per share Revenue: $1.73 billion in Q4 vs. $1.38 billion in the same period last year.

“Our outlook reflects the prudence that we think is necessary for this macro environment,” company president Harley Finkelstein said in an interview on Thursday.

“It is important right now in this particular macro that you grow the business but you also continue to let revenue fall to the bottom line,” he said.

Still, a dozen analysts raised their price targets by as much as $20, betting on growth prospects as the company attracts big clients ready to pay a premium price for its services, such as providing tools to set up a website, social media integration, and fulfillment.

“While Q1 guidance below consensus is negative, Shopify’s execution increases our confidence in the company’s ability to navigate through most macro scenarios,” RBC analyst Paul Treiber said, maintaining an “outperform” rating and raising his price target to $65 from $55.

“The lack of annual guidance suggests limited near-term visibility to the sustainability of consumer spending,” he said.

Some analysts also flagged Shopify’s significant exposure to categories such as apparel, which could take a hit from softening consumer spending.

New Chief Financial Officer

Following a severe decline in 2022, the price of Shopify stock has risen by 44% so far in 2023.

Analyst Trevor Young from Barclays said the following in a note: “We did not receive the more explicit 2023 commentary that many investors had been anticipating regarding the profitability of operating income. A strong Q4 print does appear to be overshadowed by these disappointments in the 2023 outlook; however, we believe there is a combination of conservatism and a bit of a reset on expectations by the new CFO in his first print in his new role as the role.”

The contract prices for merchants were increased by Shopify in January.

Small businesses can take advantage of Shopify’s e-commerce website-building services, and the company works with third parties to manage online payments and shipping. In addition, the company is in the process of constructing a distribution network in the United States, which will be used to stock and ship products to the company’s merchant customers.

Featured Image: Unsplash @ Roberto Cortese

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