Canadian e-commerce software giant Shopify surpassed analyst revenue estimates but its shares have fallen as the company also posted an expected net loss in its first-quarter earnings.
Shopify reported $1.86 billion USD in revenue for 23 percent year-over-year growth during Q1 2024, or 29 percent after adjusting for the sale of its logistics business last year. This amount slightly exceeded the average analyst forecast of $1.84 billion, per Yahoo Finance, driven by growth in subscription revenue, payments penetration, and gross merchandise volume (GMV).
“Right now you are seeing the strongest version of Shopify in history.”
Harley Finkelstein, Shopify
The retail tech company also posted a surprise net loss of $273 million during the first quarter, with a loss per share of $0.21 when analysts expected earnings of $0.09, per Barron’s. This marks a fall compared to the $68-million profit Shopify generated in Q1 2023. While Shopify’s operating costs were down slightly year-over-year due to its lower headcount and logistics exit, other expenses, including higher marketing spend, fuelled this loss.
Shopify has also forecast slower growth in the coming quarter, anticipating that it will take until Q3 to recognize the revenue associated with its recent price and marketing spending increases. The firm expects its Q2 revenue to grow at a high-teens percentage rate on a year-over-year basis (low-to-mid twenties when factoring in that logistics sale) as it continues to contend with uncertain economic conditions. Shopify also forecast that its gross margins will decrease slightly during this period.
In the wake of these financial results, Shopify’s stock price has dropped by more than 19 percent on the Toronto and New York Stock Exchanges as of publication time.
In a statement, Shopify president Harley Finkelstein noted that the company intends to remain focused “on building for the long-term to deliver both growth and profitability.”
During the company’s Q1 earnings call, Finkelstein hailed the combination of growth and margins that Shopify delivered during the first quarter as evidence of how the company has reshaped its business. “Right now you are seeing the strongest version of Shopify in history,” said Finkelstein.
Shopify, which sells software for building and operating e-commerce businesses, has sought to reshape itself since 2022, cutting costs, and returning focus to its core business amid a late pandemic slump. Shopify shed 20 percent of its workforce and sold its logistics operations to Flexport last May, and the company has kept its headcount flat for the past three quarters.
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Last year, Shopify hiked the cost of its basic subscription plans, partnered with e-commerce rival Amazon on fulfillment and payments, launched Commerce Components to recruit more enterprise brands, rolled out new artificial intelligence (AI) tools, made Shop Pay available beyond Shopify, expanded the availability of its point-of-sale hardware, teamed up with Faire, announced a new TikTok integration, and rolled out a new employee ranking system.
On Shopify’s Q4 earnings call a few months ago, Hoffmeister said the firm plans to “remain disciplined” on the hiring front and keep exploring ways to use AI and automation to become more efficient in 2024, as Shopify looks to hit the right balance of growth and profitability to woo investors and recoup some of the stock value it has lost since its COVID-19 peak.
During the company’s Q1 earnings call, CFO Jeff Hoffmeister said that the second quarter will mark a full year of a “fitter, faster” Shopify.
This year, Shopify has launched new lending products for its merchants, announced more new AI features, invested another $260 million into Flexport, and raised the price of its more advanced subscription plans.
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In February, Shopify also gave co-founder and CEO Tobias Lütke stock awards valued at close to $200 million, marking one of the largest compensation packages in Canadian history, according to The Globe and Mail. Speaking with The Globe in March, some experts questioned the motivation behind this move while others said it could incentivize the CEO to improve Shopify’s stock price and may signal the Shopify board’s continued faith in his leadership.
Shopify’s free cash flow margin hit 12 percent in Q1, up from six percent a year ago, with total free cash flow of $232 million. The company has now delivered three consecutive quarters of double-digit cash flow margins and forecasts that it will do the same in Q2.
During Q1, Shopify’s GMV, the total value of orders processed on its platform, rose 23 percent year-over-year to $60.85 billion. In recent quarters, Shopify’s GMV has steadily as the company has added more customers, including enterprise brands.
Going forward, Finkelstein believes there is still plenty of room for Shopify to grow in Europe, where its GMV growth is currently outpacing that of North America. He stressed on the earnings call that Shopify remains “significantly underpenetrated” in terms of global retail sales market share, and has identified a $380-billion market opportunity in its core geographies. “We’ll continue to focus on the success we’ll see in Europe,” Finkelstein added.
With files from Bianca Bharti and Douglas Soltys.
Feature image courtesy Burst. Photo by Avelino Calvar Martinez.
