Shopify’s share price has fallen sharply after the company disclosed slowing growth compared to the record results it saw in the fourth quarter of 2020.
The Ottawa-based company released its Q4 2021 earnings this morning, revealing slowing revenue growth, decelerating Black Friday sales, and soft revenue guidance, as the COVID-19 pandemic, government lockdowns, and stimulus tailwinds that drove the rise of e-commerce begin to subside.
Shopify trades on the New York Stock Exchange (NYSE) and Toronto Stock Exchange under symbol ‘SHOP.’ At time of publication, the company’s share price has dropped 18 percent since market open to $728 USD on the NYSE.
Shopify revealed slowing revenue growth, decelerating Black Friday sales, and soft revenue guidance in Q4.
Shopify’s total revenue in the fourth quarter was $1.38 billion USD, a 41 percent increase compared to 2020. These results beat analysts’ forecasts of $1.34 billion. Nevertheless, Shopify’s revenue growth has eased up from the 94 percent year-over-year rise the company experienced in Q4 2020, when the company rode the pandemic-fuelled surge of e-commerce to record results.
“The last two years have been extraordinary,” said Shopify President Harley Finkelstein, Shopify President. “We nearly tripled revenue, more than doubled GMV and the Shopify team, and the number of merchants using Shopify is nearly twice as big as 2019 levels.”
The company processed a record $6.3 billion in sales during 2021’s Black Friday-Cyber Monday (BFCM) weekend—an increase of 24 percent compared to the $5.1 billion the company saw during the same high-volume shopping period in 2020. However, this increase was much smaller than the 76 percent BFCM sales jump Shopify experienced from 2019.
“Our merchants had an incredible holiday selling season, which powered Shopify’s strong fourth-quarter results, with their collective sales growing significantly faster than the overall ecommerce industry over the Black Friday Cyber Monday weekend,” said Amy Shapero, Shopify’s CFO.
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Today’s trading results are part of the broader tech stock selloff, which has seen Lightspeed’s share price fall more than 75 percent over the past six months, leading founder and CEO Dax Dasilva to step down as CEO and become chairman.
In Q4, Shopify generated a loss of $371 million, caused primarily by a sharp drop in the value of the company’s stakes in Affirm and Global-E Online, which have also been impacted by the selloff.
In 2021 as a whole, the company recorded net income of $2.9 billion, fuelled by a $2.9 billion unrealized net gain on its equity investments.
Last year, Shopify recorded $4.6 billion in total revenue, a 57 percent increase over 2020. This rise was driven largely by the company’s growing subscription solutions and merchant solutions revenue, which rose 48 percent and 62 percent, respectively. In Q4 specifically, Shopify’s merchant solutions revenue surpassed $1 billion for the first time.
According to Shopify, the company accounted for 10.3 percent of all United States e-commerce sales in 2021, beating out Walmart and eBay and placing second only to Amazon at 41 percent.
Amid shifting market conditions, Shopify 2022 outlook “assumes continued secular tailwinds for entrepreneurship and digital commerce transformation against a more measured macro environment relative to 2021.”
Shopify said it believes that “the COVID-triggered acceleration of ecommerce that spilled into the first half of 2021 in the form of lockdowns and government stimulus will be absent from 2022, and there is caution around inflation and consumer spend near term, for the full year, we see economic growth supporting the continued penetration of retail by ecommerce.”
Given these conditions, Shopify forecasts that its 2022 revenue growth will be lower than the 57 percent rise it achieved in 2021. Shopify anticipates that its year-over-year revenue growth will be “lower” in the current quarter and “highest” in Q4 of 2022.
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Shopify said it plans to spend $200 million on capital expenditures in 2022, as it looks to adjust and simplify its approach to warehousing and fulfillment and consolidate its network into larger facilities which it plans to operate more of to better control quality and cost.
Still, there were signs for optimism within Shopify’s Q4 results and future guidance. The company noted consistent GMV (Gross Merchandise Volume, or the total dollar value of orders facilitated by Shopify) growth of $54.1 billion, a 31 percent increase YoY. After a pandemic-fuelled leap of 96 percent GMV growth in 2020 (representing $119.6 billion), annual GMV growth went back to hovering around the company’s consistent 50 percent increase of the last several years.
Gross Payments Volume (GPV, or the amount of GMV processed through Shopify Payments) grew to $27.7 billion, accounting for 51 percent of GMV processed in the quarter. The company’s PoS solution also had its best quarter ever from a GMV perspective in Q4, following the company launching its newly-integrated retail hardware with payments to merchants in six different countries last year, with three more following in early 2022 (the product is now available in 11 different countries).
On a call with investors early today, Shapero called Shopify’s Payments and PoS solutions “a significant opportunity for us,” while Finkelstein noted that many of the company’s e-commerce merchants are starting to adopt PoS in their retail locations (Allbirds and French Connection being two).
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“It was the best quarter ever for retail business on Shopify,” Finkelstein said.
Greater optimism can be perhaps found in the company’s Shop app, a digital assistant that is also integrated with Shop Pay, allowing consumers to shop, pay, and track orders. As a Trojan horse against Amazon’s marketplace, Shop seems to be doing quite well: market intelligence platform Apptopia noted that Shop was downloaded 30 million times in the US across 2021, putting it only behind Shein (32 million downloads) and Amazon (40 million downloads).
Shopify’s leadership also had strong words as to the company’s decision to reinvest all gross profit dollars in 2022 back into the business.
“We’ve always been strong allocators of capital to the right opportunities to grow the business at the right time,” Shapero said. “It means we see a significant opportunity in front of us” regarding the continued digital transformation of commerce.
Feature image courtesy Shopify.