Shopify Stock Sinks Because the Company Sees a Sales Slowdown

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Shopify
stock tumbled on Wednesday after the e-commerce software company reported fourth-quarter earnings that narrowly beat expectations, but cautioned about revenue headwinds in the first half of 2022.

The shares fell 18.2% to $727.56 on Wednesday, and were on track for their largest percent decrease on record and lowest close since June 11, 2020.

Shopify (ticker:


SHOP
) posted an adjusted quarterly profit of $1.36 a share, beating forecasts for $1.30, on sales of $1.38 billion, topping expectations for $1.34 billion and rising 41% from the same quarter in 2020.

Annual revenue of $4.6 billion also beat expectations. The company reported adjusted earnings of $6.41 a share. Analysts were expecting sales of $4.573 billion with earnings of $6.35 a share.

“The last two years have been extraordinary,” said Harley Finkelstein, Shopify president. “We nearly tripled revenue, more than doubled GMV [gross merchandise volume] and the Shopify team, and the number of merchants using Shopify is nearly twice as big as 2019 levels.”

For 2022, the e-commerce company expects year-over-year revenue to be lower in the first quarter and highest in the fourth due to three factors. The company believes the acceleration of e-commerce driven by Covid-19 will not repeat itself in the first half of 2022, but foresees certain commercial initiatives and investments to gain momentum over the course of the year. Lastly, there will be some contract terms that likely will be headwinds to its subscription solutions revenue for the first half of the year, especially the first quarter.

Shopify predicted that its subscriptions solutions revenue will grow as more merchants join the platform overall, with merchant solutions revenues growing at twice the rate of subscription solutions.

Investors were focusing on Shopify’s post-pandemic performance on Wednesday, wrote Scott Kessler, global lead of Third Bridge’s technology sector.

“People are focusing on two topics related to Shopify and the pandemic,” Kessler wrote in an email. “The first is the sustainability of growth and momentum in a world we all hope continues to open up. That means people leaving their homes and shopping in stores. Can the company deliver the mid-30% revenue growth expected for 2022?”

The second topic is the size of investments Shopify was planning on making to build out a competitive fulfillment business, which could “take a lot of time and money,” Kessler added.

The company is anticipating capital expenditures of $200 million, stock-based compensation expenses and related payroll taxes of $800 million, and amortization of acquired intangibles of $28 million, according to the earnings report.

Shopify said it had a strong fourth quarter, driven by an “incredible holiday selling season,” according to Chief Financial Officer Amy Shapero.

Merchant solutions revenue was $1.03 billion, up 47% year over year, and subscription solutions increased by 26% to $351.2 million.

Gross merchandise volume in the fourth quarter was $54.1 billion, an increase of 31% from the previous year. Gross payments volume grew to $27.7 billion, accounting for 51% of GMV processed in the quarter. During the Black Friday weekend globally, sales on the platform reached more than $6.3 billion, the company said.

During the 2021 fiscal year, Shopify rolled out a series of new initiatives to attract more merchants, such as TikTok Shopping, which enabled merchants with a TikTok for Business account to link directly to their online store checkout from the popular content app. The company also launched new retail hardware in six new markets, including Europe and Australia, as well as a money management product to merchants in the U.S.

Write to Sabrina Escobar at sabrina.escobar@barrons.com