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Shopify’s unfavorable revenue growth forecast has the stock at a six-month low

By

Reuters

Published


May 9, 2024

Canadian e-commerce platform Shopify is forecasting its slowest quarterly revenue growth in two years amid an uncertain economy and volatile consumer spending, sending its shares down about 20% on Wednesday.

Reuters

Toronto-listed shares hit a six-month low and the company was on track to lose C$25 billion ($18.21 billion) in market value as a bleak outlook overshadowed first-quarter growth.

A rebound in e-commerce growth from a post-pandemic slump has collided with cautious consumers cutting back on discretionary spending, thwarting Shopify’s efforts to integrate AI-based tools into its products and driving up prices.

The pressure is increased by the fact that the company’s main clientele are small and medium-sized enterprises, which were more susceptible to the effects of persistent inflation.

The price increases will produce smaller benefits in the current quarter compared with the prior period, Chief Financial Officer Jeff Hoffmeister said in a earnings call after the results were announced.

“In the second quarter, we begin to incorporate initial pricing changes into our standard plans that went into effect in April 2023, which negatively impacts our quarter-over-quarter revenue growth.”

Shopify said Wednesday that it expects second-quarter revenue growth in the low teens, disappointing investors who have seen average growth of about 26% over the past few quarters.

According to LSEG data, analysts estimate that revenues will increase by 19.35% in the current quarter.

Shopify also expects operating costs to increase at a low-to-mid-single-digit rate in the second quarter, compared with a decline of 4% in the first three months of the year.

The results included the impact of selling its logistics arm to freight forwarder Flexport.

“Despite a strong first-quarter report, the forecast of declining margins and lower-than-expected revenues in the second quarter is a wake-up call for investors,” said Charlie Miner, an analyst at Third Bridge.

Shopify reported first-quarter revenue of $1.86 billion, compared to analysts’ average estimates of $1.85 billion.

Excluding items, earnings per share of 20 cents were also ahead of expectations of 17 cents.

Subscription Solutions’ revenue was $511 million, up 34% from the prior year, driven by price increases and more merchants using its services.

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