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Shopify’s revenue forecast fails to impress, shares fall
Global Banking & Finance Review®
Company
By Nivedita Balu
(Reuters) -Shopify Inc on Wednesday forecast slowing revenue growth for the current quarter despite price hikes and new product launches, signaling that macroeconomic challenges were weighing on its merchants’ online businesses.
U.S-listed shares of Shopify, which started 2022 as the most valuable Canadian company before losing three-quarters of its value, fell about 11% in extended trading, even after holiday-quarter results surpassed estimates.
“Our perspectives on outlook assume that inflation remains elevated, pushing consumers to discounted and non-discretionary purchases,” Chief Financial Officer Jeff Hoffmeister said on the earnings call.
“We are mindful of the environment in which we are operating now.”
Shopify executives said the company would focus on efficiency.
Expectations were high after the e-commerce company, which offers tools and services for businesses to set up their online stores, roughly doubled annual subscription prices while taking measures such as workforce reduction to cut costs, bracing for a rough period as recession looms and shoppers tighten their purses.
It expects revenue growth in the “high-teen” percentages, while analysts had forecast a rise of nearly 20%, according to Refinitiv data.
Still, Shopify added known brands and luxury labels from Swiss fashion designer Bally to chocolate maker Mars to a list of clients paying a premium price for its services.
The company, which traditionally catered to small businesses, has been focusing on adding big brands to its clients list as they look to sell directly to consumers and use some of Shopify’s website creation and payment tools to set up their stores.
“Investors were hoping that the headcount reductions and the price increases would translate to operating leverage and higher profitability, not a return to losses in the first quarter as is implied by guidance,” said Gil Luria, analyst at D.A. Davidson.
Fourth-quarter revenue rose 26% to $1.7 billion, compared with analysts’ average estimate of $1.64 billion.
On an adjusted basis, Shopify earned 7 cents per share, beating the expectation of a 1 cent loss.
(Reporting by Nivedita Balu in Bengaluru; Editing by Shinjini Ganguli and Shailesh Kuber)
Revenue growth refers to the increase in a company's sales over a specific period, often expressed as a percentage. It indicates how well a company is performing in generating income from its business activities.
Inflation is the rate at which the general level of prices for goods and services rises, eroding purchasing power. It is typically measured as an annual percentage change.
E-commerce refers to the buying and selling of goods and services over the internet. It includes various online business models such as retail, wholesale, and marketplaces.
Operating leverage is a financial concept that measures the proportion of fixed costs in a company's cost structure. High operating leverage can lead to greater profits as sales increase but also increases risk during downturns.
Subscription prices are fees charged to customers for access to a service or product over a specified period. This model is commonly used in software, media, and membership-based businesses.
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