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The Ottawa headquarters of Canadian e-commerce company Shopify on May 29, 2019.Justin Tang/The Canadian Press

Analysts are ratcheting down expectations for Shopify Inc.’s SHOP-T first-quarter financial results, as growing concerns about e-commerce weigh on the Ottawa company’s shares amid a rout in global technology stocks.

E-commerce stocks had maintained high values over much of the past two years, buoyed by bets on the public’s reluctance to shop in physical stores during the pandemic. But, as consumers gradually return to old habits and surging inflation raises questions about spending, analysts are cautioning that online traffic growth seen during the pandemic may not prove sustainable for companies such as Shopify, Amazon.com Inc. and Etsy Inc.

Last week, Shopify became this year’s worst Canadian performer on the S&P/TSX Composite Index. The company has lost more than $155-billion in market value so far this year, a roughly 69-per-cent drop. Also last week, Amazon reported a loss of US$3.8-billion in its first quarter, compared with a profit of US$8.1-billion in the same quarter last year, sending its share price into a tailspin. The price of a share of Etsy, which will reveal quarterly earnings on May 4, has fallen 57 per cent in 2022.

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Ahead of Shopify’s earnings report, which will be released on Thursday, analysts are slashing their price targets for its shares, and the average consensus estimate for the company’s earnings has fallen in recent weeks. CIBC Capital Markets, for example, lowered its target for Shopify by nearly half, from US$850 to US$460, while keeping the stock’s rating at neutral. Analysts at Piper Sandler, Canaccord Genuity and RBC Capital Markets have also lowered their targets.

Tom Forte, managing director and senior research analyst at D.A. Davidson, has placed his price target for Shopify under review. The company’s rising spending on operations could flatten its growth in earnings before interest, taxes, depreciation and amortization (EBITDA), he said.

“Right now, if you look at the state of e-commerce, there’s multiple challenges,” he added. “There’s inflation, continued supply chain challenges, and then you have a backdrop where investor sentiment for technology stocks has soured meaningfully. All of that is working against Shopify.”

According to CIBC equity research, traffic to Shopify’s website declined by about 6 per cent this quarter, compared with the year-earlier quarter. “While Shopify has often exceeded expectations since its 2015 IPO, the margin has been shrinking,” CIBC analyst Todd Coupland wrote in a note to clients.

RBC analysts Paul Treiber and Daniel R. Perlin wrote in a note last week that they are hoping to hear more about recently announced changes to Shopify’s share structure on Thursday’s earnings call. The company announced a plan in early April to split its stock so that it can draw more retail investors. But since then its share prices have fallen steeply, hitting several fresh lows.

“Consumer spending concerns continue to persist,” Mr. Treiber and Mr. Perlin wrote.

Still, Mr. Treiber and Mr. Perlin told clients that they remain hopeful. “While shares are likely to remain volatile in the near-term, we believe Shopify is one of the most compelling long-term growth stories in our coverage,” they wrote. They have moved their price target for Shopify from $1,300 to $1,000.

Mr. Coupland noted that Shopify’s growth is still outrunning others in the sector, but that it, like all e-commerce companies, is being impacted as brick-and-mortar stores regain their appeal.

“Shopify’s growth will outpace the market,” he wrote, “but it is slowing.”

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