Shopify's stock slides 19% after company swings to quarterly loss

By Ciara Linnane

Company is expecting gross margin to shrink by 50 basis points in the second quarter

Shopify Inc.'s stock tumbled 19% Wednesday to put it on track for its biggest ever one-day decline, after the provider of tools and technology for retailers e-commerce efforts swung to a first-quarter loss, offsetting a revenue beat.

The stock has fallen for two straight days and is down about 12% in the month to date. The company went public in May of 2015.

The company (SHOP) posted a net loss of $273 million, or 21 cents a share, for the quarter, after income of $68 million, or 5 cents a share, in the year-earlier period.

Excluding one-time items, the company had adjusted EPS of 20 cents, ahead of the FactSet consensus of 17 cents.

Revenue rose to $1.861 billion from $1.508 billion a year ago, just ahead of the $1.843 billion FactSet consensus.

The loss came as the cost of revenue rose to $904 million from $791 million a year ago.

"Shopify's core business remains strong, and its moat is well intact, but questions surrounding its profitability trajectory and its high growth status present a new challenge they must navigate," said Charlie Miner, analyst at research firm Third Bridge, in remarks made after interviewing experts in the retail space.

Gross merchandise volume rose 23% to $60.9 billion in the quarter, ahead of the $59.3 billion FactSet consensus.

Merchant-solutions revenue rose 20% to $1.4 billion, while subscription solutions revenue was up 34% to $511 million. Monthly recurring revenue rose 32% to $151 million with Shopify Plus contributing 32%, compared with 33% a year ago.

Gross payments volume rose to $36.2 billion, or 60% of GMV processed in the period, up from 56% a year ago.

On a call with analysts, Shopify President Harley Finkelstein said more high-volume merchants are signing up with the company, including Overstock.com and BarkBox, a subscription service for dog products.

The latter is expected to debut on the Shopify platform in 2025 and will be its biggest subscription merchant with more than 2 million subscribers, he said.

Other sign-ups include consumer packaged good companies Harry's and PrettyLitter, fitness and wellness companies Juice Plus+, Balance of Nature and Soul Cycle, consumer electronics company Skullcandy, manufacturer of cleaning equipment Carter, health and beauty brand FragranceNet.com and celebrity brands such as Serena Williams' beauty brand, WYN Beauty, Beyoncé's hair care brand Cécred and Dwayne the Rock Johnson's skincare line, Papatui, he said.

Chief Financial Officer Jeff Hoffmeister said the company is now expecting second-quarter revenue growth at a high-teens percentage rate. The FactSet consensus implies growth of 19%.

It expects gross margin to shrink by about 50 basis points from the first quarter as operating expenses rise by a low-to-mid-single digit percentage rate.

The guidance has been impacted by the sale of the company's logistics businesses last year, which is expected to create a headwind of about 300 basis points to 400 basis points for revenue and a gross margin headwind of about 200 basis points to 300 basis points.

Overall, the company is expecting consumer spend in North America to remain resilient, but is factoring in a hit from the strong dollar and some weakness in European consumer spending.

"We have and expect to continue to outperform the e-commerce growth rates in North America and Europe," said Hoffmeister. "We otherwise assume that the macroeconomic environment remains consistent with current conditions."

The stock is down 1% in the year through Tuesday's close, while the S&P 500 has gained 8.8%.

Read also: Shopify is tightening up on hiring. One analyst likes the stock more as a result.

-Ciara Linnane

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05-08-24 1228ET

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