Shopify tops revenue expectations but stock tumbles on soft outlook

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Shopify Inc. SHOP-T topped revenue expectations but posted a drop in operating earnings as the e-commerce company grapples with a sectorwide slowdown that it believes will continue to suppress its growth.

Shares of Shopify sank in after-hours trading, falling more than 8 per cent after the company announced fourth-quarter financial results and issued a muted forecast for revenue in the coming quarter. Shares were down roughly 15 per cent shortly after 10 a.m. ET on Thursday.

The Ottawa-based company, which provides tools and services for businesses to run their stores online, said revenue climbed 26 per cent to US$1.7-billion for the quarter ended Dec. 31, 2022, while adjusted operating income dropped to US$61-million from US$130.2-million a year earlier.

Shopify reported a net loss of US$623.7-million or 49 US cents a share in the quarter, compared with a loss of US$371.3-million or 30 US cents a year earlier.

In a conference call with analysts late on Wednesday, chief executive officer Tobias Lutke characterized current economic conditions as a period of learning for Shopify. “Profitability is a consequence of growth and efficiency combined,” he said. “We have been profitable many times before. … Over time, profitability will take care of itself.”

Gil Luria, managing director and senior software analyst for U.S. investment bank D.A. Davidson, said the company’s “conservative” outlook overshadowed its “strong” fourth quarter, which included higher-than-expected revenue.

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“Costs appear to be at a trajectory that may translate to a loss,” Mr. Luria said. Investors expected “more upside to growth, not a deceleration,” he added, particularly after “the big price increases announced last month.”

In January, Shopify raised prices for its three main service plans after they were left largely unchanged for over the past 12 years. Its basic plan now costs $51 per month, up from $38, while its mid-range plan went to $132 from $99 per month. Shopify’s advanced plan has increased to $517 from $389.

Buoyed by bets on the public’s reluctance to shop in physical stores during the COVID-19 pandemic, e-commerce companies and their stocks soared before last year. Now, however, as the technology industry in general faces a number of headwinds and macroeconomic challenges, the e-commerce sector has been particularly affected. Some consumers are cutting back on discretionary spending and turning away from online shopping amid rising interest rates and higher inflation, Shopify has noted.

Shopify saw its stock price drop by more than two-thirds last year, and has entered 2023 with fewer employees and leaner operations after cutting more than 10 per cent of its work force last fall.