Shopify stock falls as earnings are underwhelming

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Shopify became the latest e-commerce company to suffer from the slowdown in the pandemic-driven boom, after it reported lower-than-expected first-quarter earnings and saw its shares plummet by nearly a fifth.

The Canadian company, whose software helps retailers and brands create online storefronts, on Thursday reported a 22 percent year-on-year increase in sales for the three months ended March to $1.2 billion — the slowest growth rate on record .

The numbers came in slightly below consensus expectations of $1.25 billion. The Ottawa-based company posted a net loss of $1.4 billion, down for the second consecutive quarter.

Shopify shares, which are down more than 70 percent of their value so far this year, fell nearly 20 percent in early trade Thursday, temporarily dipping below $400 a share.

Shopify has been one of the biggest winners from the pandemic as lockdowns prompted millions of small businesses to launch online stores. However, the recent return of shoppers to brick-and-mortar stores has weighed on Shopify’s prospects.

The group on Thursday reiterated its confidence in the growth of e-commerce by agreeing to pay $2.1 billion to acquire Deliverr, a San Francisco-based fulfillment startup. The deal will be funded 80 percent by cash with the rest in Shopify stock.

The acquisition is part of Shopify’s effort to expand its logistics network in its fight against Amazon.

“I don’t think people are moving away from online shopping,” said Harley Finkelstein, president of Shopify. “Some of that has been pushed forward in the last two years, but online still accounts for a very small percentage of retail,” he said.

For the first three months of 2022, Shopify reported gross merchandise volume — a measure of total consumer spending across the group’s store network — of $43.2 billion, up 16 percent year over year but about half of in Growth rate recorded in the previous quarter.

The company said revenue growth this year will be “lower in the first half and highest in the fourth quarter.”

Shopify’s services enable brands and independent stores to sell directly to customers through their own websites or social platforms like Instagram, as an alternative to trading through Amazon or other marketplaces.

Shopify proposed a 10-for-1 stock split in April and presented a plan to protect the voting rights of founder and CEO Tobi Lütke. The amendments propose that his voting rights be set and maintained at 40 percent of the Group’s total outstanding shares.

“[Lütke] has proven that he can generate returns of over 60 percent per year since our IPO,” said Finkelstein. “We would have done something like this before, but during Covid-19 our focus was entirely on creation [from the pandemic],” he said.

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