Shopify Inc. produced a better-than-expected holiday quarter based on an earnings report on Wednesday, but a forecast for slowing revenue growth hit shares in after-hours trading.
Shopify STORE,
it sells e-commerce tools to merchants, a business that has intensified rapidly during the pandemic as traditional brick-and-mortar businesses jumped online to reach customers unable to visit their stores. However, sales growth slowed last year and Shopify recently announced it will raise prices as it faces competition from Amazon.com Inc. AMZN,
which is rolling out its rival’s Buy with Prime service to more retailers this year.
In their forecast, Shopify executives indicated that revenue would grow “at high teen percentages” in the fiscal first quarter, though they did not provide a forecast for any profit metrics or for the full year. Analysts, on average, were projecting first-quarter revenue of $1.48 billion, according to FactSet, which would mean revenue growth of more than 23%.
For the fourth quarter, Shopify reported a loss of $623.7 million, or 49 cents per share, on revenue of $1.73 billion, up from $1.38 billion a year earlier. After adjusting for stock-based compensation, investment earnings and other costs, the company reported earnings of 7 cents per share, down from adjusted earnings of 14 cents per share in the 2021 holiday quarter.
Analysts on average expected an adjusted loss of one cent per share on sales of $1.65 billion, according to FactSet. Shopify shares fell nearly 7% in after-hours trading following the earnings release, after closing up 6.6% at $53.39.
Shopify’s stock has taken a hit amid a slowdown in ecommerce growth during the pandemic era, though it’s been around so far in 2023. The stock is down nearly 40% in the past 12 months, but has up over 53%, so now in 2023; the S&P 500 SPX Index,
it has fallen 7.5% and gained 7.7% in those time periods, respectively.
Shopify was one of the first big-name tech companies to cut staff as growth slowed from the pandemic, announcing a 10% cut in July of last year. At the time, Chief Executive Tobi Lütke took the blame, saying he had gambled on continued strong growth and “it is now clear that gamble didn’t pay off.”
Analysts largely believe those cost-cutting measures will help, but they may not outweigh the macroeconomic pressures Shopify is facing any time soon.
“At a high level, we believe the key challenges for Shopify remain the easing discretionary spending environment and margin pressures from payments and fulfillment, albeit partially offset by some cost-cutting measures,” they wrote. Evercore ISI analysts this week while maintaining an Outperform rating and $50 price target.