Shopify shares plummet after it reveals slowing revenue growth, Black Friday sales - The Globe and Mail

The logo of Shopify hangs behind the Canadian flag after the company's IPO at the New York Stock Exchange May 21, 2015.Lucas Jackson/Reuters

Shopify Inc.wants to spend US$1.2-billion over the next three years to expand and more tightly control its warehousing and fulfillment network as it grapples with a revenue slowdown that sent its share price plummeting Wednesday.

The Ottawa company’s shares were down more than 18 per cent mid-morning, to $925 in Toronto, after it published financial results from the final quarter of 2021. The company revealed that the pandemic rush that sent merchants to the e-commerce platform in droves two years ago has now slowed down, and was very apparent by the Black Friday weekend. It processed US$6.3-billion in sales over the weekend last year, up 24 per cent from US$5.1-billion in 2020 – but sales that year were up 76 per cent from 2019

Shopify said its revenue for 2021′s fourth quarter was US$1.38-billion, up 41 per cent from a year earlier and beating analysts’ forecast of US$1.34-billion. But that total revenue growth has decelerated from 94-per-cent fourth-quarter revenue growth between 2019 and 2020, and the company said it expected this slowdown to remain in place for at least the first half of 2022.

Shares have collapsed by nearly half from their late-November peak amid a sharp selloff for tech companies. “Given the current market for technology stocks, we think the stock needed a blockbuster quarter to have it move meaningfully higher in the short-term,” National Bank of Canada analyst Richard Tse said in an e-mail.

Executives said Wednesday that the company was changing its warehousing and fulfillment strategy, first announced in 2019 as executives began more clearly describing the company as an alternative to mega-retailers such as Amazon.com Inc. The company has long been quiet about the size and capabilities of the network, originally expected to cost $1-billion. But Shopify revealed that it had spent US$117-million so far, and that the system largely depended on working with existing warehouses to minimize Shopify’s assets in the space.

That strategy quietly changed in 2021, when the company began operating its own warehouse in Atlanta – one that executives said Wednesday will serve as a model for a three-year, US$1.2-billion plan for a network of leased, self-operated facilities across the United States. Shopify said it hoped to bring two-day shipping to 90 per cent of the U.S., while integrating the network more closely with its sales systems to make it easier for merchants to get their wares in front of customers. Executives also said they hoped to bring in biggest customers during the process.

“We are shifting the network model to larger-capacity hubs, and we want to operate more of them ourselves to better control quality, but also cost,” Shopify president Harley Finkelstein said on an analyst call. “We’re transitioning from prototype into build,” he added later.

Mr. Tse called the new strategy unsurprising. “They never were specific with targets when they originally unveiled their investment which tells me they needed to better learn and optimize their fulfillment model,” the analyst said. “Given the challenging backdrop for tech stocks, that’s unlikely to get a pass from investors in the short-term.”

Though the company took a loss of US$371-million in the most recent quarter, or US$2.95 per share – tripling in size from a year earlier – it was primarily caused by a nearly half-billion-dollar collapse in the value of its stakes in two public companies, Affirm Holdings Inc. and Global-E Online Ltd., which have been battered in the tech selloff.

In January, Shopify made a significant move into the Chinese market with a new partnership with JD.com, which provides fulfillment from JD’s U.S. warehouses directly to consumers in China.

In the fourth quarter, its Shopify Plus service for larger merchants, accounted for 29 per cent of its monthly recurring revenue – up from 25 per cent a year earlier.

Martin Toner, an analyst with ATB Financial, said in a research note that he believed these kinds of investments would assist Shopify’s revenue growth as it stabilizes after pandemic highs: “We continue to believe e-commerce sales will continue to grow, and that Shopify will gain share of customers and customers’ wallet[s].”

Shopify also plans to allow more merchants to sell non-fungible tokens (NFTs) through its e-commerce platform, a program that is currently in its beta-testing stage for U.S.-based customers, who can use partner apps to mint NFTs on blockchains like Ethereum and Polygon.

With a report from Sean Silcoff.

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2022-02-16 13:46:03Z
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