Shopify shares plummet on slower growth outlook

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Shopify Inc. is bracing for a year in which the COVID e-commerce boom that propelled tech companies to record growth levels begins to wane.

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Canada’s champion in the digital economy said on Wednesday it expects revenue growth to be lower in 2022 than 2021. Revenue for the past year topped US$4.61 billion, a 57 per cent increase from 2020.

“Our outlook for 2022 assumes continued secular tailwinds for entrepreneurship and digital commerce transformation against a more measured macro environment relative to 2021,” Amy Shapero, chief financial officer, told analysts on an earnings call.

Consumer spending patterns are set to change, she noted, as the online buying spree spurred by stay-at-home measures and government stimulus loses momentum.

And as central banks in developed economies begin to raise interest rates to deal with decades-high inflation, consumers and businesses will tighten their belts.

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“Our financial outlook anticipates revenue growth for the full year 2022 that’s lower than 2021’s 57 per cent, but still rapid,” Shapero said. The company did not reveal how much lower.

Investors were not happy. Shares of the Ottawa-based company plummeted Wednesday, dropping more than 18 per cent to $923.85 in Toronto as of 1:02 p.m. Philip Petturson, chief investment strategist at IG Wealth Management, said in an interview that Shopify’s shares could drop some more if investors have decided to align the company’s market capitalization with revenue.

“It’s an excellent company, the market just got the price wrong,” Petturson said.

Since November, Shopify’s market capitalization has dropped from $200 billion to $116 billion.

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Shopify told analysts on the call that to get ahead of these shifts in the economy they plan to focus on a few key areas, such as expanding the company’s point-of-sale offerings and its mobile app, facilitating global purchases of products, especially in China, and consolidating its fulfilment networks.

The company plans to improve its e-commerce app, where its merchants can sell their wares in a curated experience for buyers. Last year, engineers added better algorithms to the app to improve recommendations for buyers and Shapero said more features will be added. Shopify also plans to expand the use of its point-of-sale hardware and software in brick-and-mortar stores as people get more comfortable with shopping in-person again.

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“In 2021, we expanded availability of our new Shopify point of sale hardware, with integrated payments, to retail merchants in the U.K., Ireland, Australia, New Zealand, the Netherlands, and Germany and entered Belgium, Denmark and Spain so far in 2022,” president Harley Finkelstein told analysts.

Executives on the call touted Shopify’s new Market feature, which makes currency conversions, language translation, local payment methods and managing duty and import taxes easier. In January, the company also partnered with JD.com, a Chinese e-commerce platform that will expand Shopify’s merchant access to China.

Notably, the software maker is consolidating some of its shipping warehouses and will solely take over operations. Previously, the company had partnered with third-party fulfilment companies in an effort to break into the delivery space.

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“We expect that these changes will enable us to deliver packages in two days or less to more than 90 per cent of the U.S. population, while minimizing the inventory investment for … merchants,” Finklestein said.

Shopify is embarking on a three-year plan to execute the fulfilment network strategy it piloted in Atlanta last year. The company is also expanding into non-fungible tokens (NFTs), executives said, and will offer minting services for users.

In the fourth quarter, Shopify’s revenue rose 41 per cent from the same period last year to US$1.38 billion and beat analysts’ expectations of US$1.33 billion, according to Refinitiv data.

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A strong holiday season supported the company’s top-line and for the first time, its merchant solutions revenue, which comes from add-ons like payment processing and shipping fees, hit US$1 billion due to high gross merchandise volumes, a 47 per cent increase.

Its core line of business, subscriptions for its software, was up 26 per cent to US$351.2 million. The company posted a net loss in the fourth quarter ended Dec. 31, 2021, down US$371.3 million or US$2.95 per diluted share.

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