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Earnings Results: Shopify earnings fall short as e-commerce growth slows

Shares of Shopify Inc. were sinking in Thursday trading after the company fell short on earnings, showing the impact of a broader slowdown in e-commerce growth as well as the company’s own rising investments in fulfillment initiatives.

Shopify SHOP, -14.38% generated $1.20 billion in revenue during its first quarter, up from $989 million a year before but below the FactSet consensus that called for $1.24 billion, as the e-commerce business slowed more quickly than analysts had been anticipating.

The company benefited a year ago from stimulus disbursements that helped jolt spending, which analysts acknowledged meant that the latest quarter was up against tough comparisons.

Chief Financial Officer Amy Shapero noted as well that Shopify’s prior-year results partly reflected stimulus and lockdown benefits, and also highlighted some negative impacts from a resurgence of in-person activity and the rise of inflation in the most recent period.

“The timing of omicron easing was also a factor with mobility resuming with vigor earlier in Q1 of this year versus Q1 of last year, causing a shift in consumer spend to offline retail and travel starting in early February this year, in strong contrast to a year ago, where that shift occurred in late March and into April,” she shared on Shopify’s earnings call.

Though inflation impacted the business to a “lesser extent,” she added that consumers have been moving more of their online and offline spending to discount retailers.

Shopify didn’t provide traditional guidance, but it offered that it expects revenue growth to be “lower in the first half” of 2022 relative to a year earlier, and highest in the fourth quarter of the year.

Shopify saw $43.2 billion in gross merchandise volume, or the value of orders facilitated through its platform, up from $37.3 billion a year prior but below the FactSet consensus of $45.5 billion.

The company posted a net loss of $1.5 billion, or $11.70 a share, which Shopify said reflected $1.6 billion in net unrealized and realized losses on equity and other investments during the quarter. Shopify had posted net income of $1.3 billion, or $9.94 a share, in the year-earlier period.

Shopify’s adjusted earnings per share fell to 20 cents from $2.01 a year before, while analysts had been expecting 62 cents.

“Profitability missed across the board as a consequence of the [revenue] shortfall and stepped-up investments,” Jefferies analyst Samad Samana wrote.

Shares were off about 14% in afternoon trading.

“Our intention to reinvest all of our gross profit dollars back into the business this year remains intact since the pace of change independent brands need to get ahead of is not slowing down,” Shapero said on the call.

CFRA analyst Angelo Zino noted that Shopify is due to face easier comparisons as the year goes on, but he acknowledged that the company’s approach to investments might not sit well in the current climate.

“[W]e see the current market landscape unwilling to reward high-growth companies like SHOP looking to sacrifice all profits at the expense of growth,” he wrote.

Shopify also announced Thursday that it planned to acquire Deliverr, a fulfillment-technology company, in a deal worth $2.1 billion that will consist of about 80% in cash and 20% in Shopify Class A subordinate voting shares.

“While adding Deliverr this year will impact profitability in 2022, it’s well worth it because it accelerates our ambitions around SFN,” President Harley Finkelstein said on the earnings call, referring to the Shopify Fulfillment Network. Shopify has been trying to compete with the likes of Amazon.com Inc. AMZN, -7.33% by offering inventory-management tools for customers and offering to distribute their products to fulfillment centers in support of two-day delivery.

The deal “represents a continuation of Shopify’s asset-light approach to fulfillment, and should improve SFN’s inventory management and accelerate its fulfillment volume,” Mizuho analyst Siti Panigrahi wrote following the announcement.

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