A day after announcing it would conduct steep layoffs, Shopify Inc. announced a quarterly loss and issued more cautious commentary about the way inflation was impacting the business, though its shares rallied sharply following the latest report.
Despite falling premarket after the results were released, Shopify shares
were in the black for virtually all of Wednesday’s trading session, with gains building throughout the day. Shares were up about 11% in afternoon trading Wednesday after declining 14.5% in Tuesday’s session.
Executives toned down their guidance from three months ago, noting that the new “outlook supersedes all prior statements made by Shopify.” Shopify’s outlook section after the first quarter led with expectations for year-over-year revenue growth that was lowest in the first half of 2022 and highest in the fourth quarter, but that mention was stripped from the latest release.
Shopify executives said this time around that they expected gross merchandise volume and revenue to be more distributed across the four quarters, similar to what was seen in 2021, given pressures on consumer spending and negative impacts from currency.
“We now expect 2022 will end up being different, more of a transition year, in which e-commerce has largely reset to the pre-COVID trend line and is now pressured by persistent high inflation,” the release states.
Shopify executives also anticipate an adjusted operating loss for the second half of the year, with the loss for the third quarter expected to “materially increase” versus what was seen in the second quarter, in part due to “time needed for the streamlining of our operations to take effect.”
Executives had said in conjunction with its prior earnings report that they planned to reinvest all of its gross-profit dollars back into the business. While such a statement appeared in the company’s previous earnings release, it wasn’t in the latest one.
“We believe our broader e-commerce coverage will likely share similar outlooks for 2H:22 as the industry faces a multitude of macroeconomic headwinds and e-commerce growth appears to be trending closer to its pre-pandemic trajectory,” Stifel analyst Scott Devitt wrote in a note to clients. “Despite near-term headwinds, we believe Shopify remains an industry leader that will continue to capture retail market share as conditions eventually improve,” though he’s currently more partial to shares of Amazon.com Inc.
and eBay Inc.
Evercore ISI’s Mark Mahaney offered that while “macro headwinds are widely known” in the case of Shopify, “online retail continues to take share, and should continue to do so.” Shopify “should fully participate in that.”
For the latest quarter, the company posted a comprehensive loss of $1.21 billion, or 95 cents a share, whereas it notched comprehensive income of $876 million, or 69 cents a share, in the year-earlier quarter. On an adjusted basis, Shopify lost 3 cents a share, while it had posted 22 cents in earnings a year before. Analysts tracked by FactSet were expecting 2 cents in adjusted EPS.
Revenue increased to $1.30 billion from $1.12 billion but came in just below the FactSet consensus, which was for $1.33 billion.
Gross merchandise volume jumped to $46.9 billion from $42.2 billion, while analysts had been looking for $48.8 billion.
“While commerce through offline channels grew faster in Q2, where our exposure is lower but growing, we continued to see increased adoption of our solutions, enabling our merchants to remain agile against a challenging macro environment and highlighting the breadth and resilience of our business model,” Chief Financial Officer Amy Shapero said in a release.
In a blog post announcing the plan to cut 10% of the workforce, Shopify Chief Executive Tobi Lütke said that Shopify had tried to “expand the company to match” expectations that the pandemic would permanently accelerate the mix of e-commerce spending by five to 10 years, when in reality those targets proved too optimistic.
A CFRA analyst flagged at the time of Shopify’s last earnings report that he was unsure whether Shopify’s approach to profit reinvestment would sit well in the current market climate, while a Baird analyst noted Tuesday that investors had been “concerned” about the company’s spending plans prior to the layoff announcement.