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Shopify stock tumbles 19% after forecasting slower Q2 sales growth
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Shares of Shopify plummeted more than 20 per cent in early trading on
Wednesday, after the company forecast slower quarterly sales growth.
(Photo by Sean Gallup/Getty Images) (Sean Gallup via Getty Images)
Shopify's stock (SHOP.TO)(SHOP) plunged 19 per cent on Wednesday,
shedding billions in market value after the company forecast slower
sales growth and a decline in gross margins.
The e-commerce software company's first-quarter results surpassed
analyst expectations on Wednesday, but concerns about slowing growth
weighed on investors. While Shopify says it expects consumer spending
in North America to remain resilient, sales growth is expected to slow
in its upcoming quarter.
Shopify says it expects sales in the second quarter to grow at a high-
teens percentage year-over-year, down from the last few quarters which
saw an average growth of about 26 per cent. According to Reuters, the
forecast would reflect the slowest quarterly revenue growth in two
years. Adjusting for the sale of Shopify's logistics business, revenue
increased 29 per cent in the first quarter of the year. The company
said it marked the fourth consecutive quarter where revenue growth was
greater than 25 per cent, excluding logistics.
Shopify also expects gross margins in the second quarter to decrease
approximately 50 basis points, while operating expenses will be up
low-to-mid single digits.
Shopify's stock fell as much as 21 per cent in early trading on the
Toronto Stock Exchange on Wednesday. It closed the trading day down
nearly 19 per cent.
"With Shopify trading at a premium nine-times revenue multiple coming
into this quarter, we sense that lofty investor expectations were not
met," William Blair analyst Arjun Bhatia wrote in a research note on
Wednesday. Still, Bhatia says Shopify "is a long-term winner in the
space" given its positioning in the market.
"Overall, we continue to like Shopify's long-term positioning and,
after the dust settles, would view the weakness as a buying
opportunity," he wrote, maintaining an "outperform" rating on the
stock.
Shopify said its forecast will be affected by the sale of its
logistics business to U.S.-based Flexport, a move that was first
announced last May. Also weighing on the forward guidance is a strong
U.S. dollar and softness in European consumer spending, specifically
in the United Kingdom, Shopify's chief financial officer Jeff
Hoffmeister said on a conference call with analysts.
Story continues
Hoffmeister also noted that the largest impact on the changing growth
rate is that the company is lapping the quarter where it introduced
price hikes across its monthly plans. Last year, Shopify hiked the
cost of its Basic, Shopify and Advanced plans, noting at the time that
its prices had remained largely unchanged for the last 12 years.
Hoffmeister says the price hikes, which went into effect in April last
year, will have "a smaller combined benefit" in the second quarter,
"resulting in a headwind to our revenue growth, quarter-over-quarter."
"We remain confident in the great products and go-to market
initiatives fuelling our continuous growth and our ability to further
strengthen our position as a leader in unified commerce," Hoffmeister
said.
Shopify president Harley Finkelstein said on the conference call that
"right now, you're seeing the strongest version of Shopify in our
history."
"We know our team is one of our most valuable assets, and given that
it makes up over half of our cost base, we believe we've architected
ourselves to be faster and more agile, which has enabled us to
consistently deliver 25 per cent revenue growth, excluding logistics,
all while keeping our headcount flat for three straight quarter," he
said.
Shopify says sales in the first quarter ending March 31 reached
US$1.86 billion, up from US$1.51 billion during the same period last
year. The company reported a net loss of US$273 million, or 21 U.S.
cents per diluted share, compared to a profit of US$68 million, or
five U.S. cents per diluted share, last year.
_With files from Reuters_
_Alicja Siekierska is a senior reporter at Yahoo Finance Canada.
Follow her on Twitter_ _@alicjawithaj_ _._
_Download the Yahoo Finance app, available for_ _Apple_ _and_
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