Investors drove down Shopify Inc.’s share price nearly 5 per cent Tuesday as the e-commerce platform company reported a wider net loss for its first quarter and issued conservative guidance for the rest of the fiscal year.
The company’s TSX-listed shares closed at $163.50, having fallen more than 10 per cent early in trading, with a day low of $153.25. Despite a better-than-expected US$214-million in revenue for the quarter – a jump of 68 per cent over last year – Shopify reported a loss of US$15.9-million, or 16 US cents a share, compared with a loss of US$13.6-million or 15 US cents a year earlier, as expenses grew.
“They’re not generating a ton of profits yet as they’re laying foundational investments in the business for the next leg of growth, so maybe folks would like to see a bit more operating leverage out of them,” D.J. Hynes, who covers Shopify for Canaccord Genuity, said in a phone interview.
The Ottawa-based company has recently seen run-ups in its stock price ahead of financial-results releases, and Mr. Hynes, who has a “buy” rating on the stock, expects it to recover. “I suspect, if we’re talking two weeks from now, the stock would have recouped any of these losses.”
Shopify projected its total revenue for 2018 to be between US$1-billion and US$1.01-billion, just 1-per-cent more than analyst consensus – which RBC Dominion Securities analyst Ross MacMillan said might also play into investor disappointment. “The historic average has been 3.5 per cent, so I think it’s purely the magnitude” of how much the guidance beat expectations, he said in an interview.
The software maker saw a 64-per-cent year-over-year growth in gross merchandise volume, to US$8-billion. This is a crucial metric for Shopify that represents total revenue from orders placed through its platform; during last year’s first quarter, it grew 81 per cent.
On an adjusted basis, the company reported a profit of 4 US cents a share, beating analyst consensus expectations of a loss of 5 US cents a share.
Despite its net loss and cautious projections, Shopify executives focused on their ambitious growth plans on a conference call with analysts Tuesday morning. Armed with US$1.6-billion in cash and equivalents, thanks in part to a new offering of Class A shares last quarter, they discussed plans to invest in both expansion to non-English-speaking countries as well as expanding its offerings for merchants.
“We are embarking on a multiyear journey towards making Shopify as simple and effective globally as it is in our core geographies,” chief operating officer Harley Finkelstein said.
Shopify’s cost of revenues, operating expenses and stock-based compensation all rose in the first quarter of 2018 over last year. The latter, said founder and CEO Tobi Lutke, is expected to continue rising as the company adds to its 3,000-plus headcount, including among senior ranks and in research and development.
Asked by an analyst about attracting talent, Mr. Lutke said: “Everyone says it’s impossible, and for us it seems to be just really, really hard, so I think we’re in better shape than most.”
Mr. Finkelstein said that Shopify’s shift to cloud providers for data storage pushed up its subscription-solutions costs in the first quarter. But he said that it was a short-term rise and a necessary one as the company expands into new markets in an era in which data sovereignty is becoming more regulated, thanks to initiatives such as the European Union’s General Data Protection Regulation.
The company wants to expand beyond its traditional English-speaking markets in North America, Britain and Australia, Mr. Finkelstein said. To do so, the company hopes to localize its platform to better accommodate different payment methods and currency capabilities, as well as services in its “merchant solutions” revenue stream, such as shipping services.
Shopify executives also teased further investments in its core offerings. “One thing we’re not lacking is opportunity,” said Amy Shapero, the company’s new chief financial officer, who joined the company four weeks ago. While the company held off from offering specifics, it will host a conference for partners and developers next week in Toronto where more details could emerge.
The company’s shares also fell in March after short-seller Andrew Left, an unrelenting Shopify critic, issued a second report attacking its business model. Over the past year, however, shares are up more than 50 per cent.