Shopify Shares Hit Two-Year Low on Profit Miss, Softer Outlook
Shopify Sinks After Earnings Miss and $2.1 Billion Deliverr Deal
(Bloomberg) -- Shopify Inc. shares plunged to the lowest since April 2020 after it missed analysts’ profit estimates and announced the largest acquisition in its history, a $2.1 billion deal for delivery startup Deliverr Inc.
Shopify was down 17% to 400.83 as of 11:15 a.m. in New York. They’ve declined more than 70% this year.
The Canadian e-commerce software firm earned 20 cents per share on an adjusted basis in the first quarter, far short of analyst calls for 64 cents. The company gave a weaker outlook for adding new business customers in 2022, saying growth in merchants using the platform would be “comparable” to 2021.
E-commerce stocks have been pummeled this earnings season on concerns that online shopping is slowing as the Covid-19 pandemic fades. Amazon.com Inc. suffered the biggest one-day drop since July 2006 after it reported a weaker-than-expected revenue forecast. Wayfair, Etsy and EBay all dropped on Thursday.
Revenue rose 22% to $1.2 billion from a year earlier, but couldn’t match analyst expectations of $1.25 billion, according to data compiled by Bloomberg.
Gross merchandise volume, the value of merchant sales flowing through Shopify’s platform, grew 16% in the first quarter from a year earlier to $43.2 billion. Analysts, on average, expected $46.5 billion in GMV.
“While SHOP continues to give less specific guidance across key metrics, new merchant comment commentary was revised lower,” Citigroup analyst Tyler Radke said in a note to clients. “We expect the stock to trade down given the significant miss on GMV, profitability and continuation of headwinds into Q2.”
Shopify is contending with consumers returning to physical stores and rising inflation, as well as labor shortages, Chief Financial Officer Amy Shapero said.
“We saw lower merchant adds than last year and we largely attribute that to a very tight and transitional labor market,” Shapero told analysts. “We expect that the labor market will start to ease.”
Deliverr Deal
Shopify also reached a deal to acquire Deliverr to expand in fulfillment services, confirming an April 20 report by Bloomberg News. In January, Shopify canceled several fulfillment and warehouse contracts intended to create its own distribution network.
Shopify to Buy Deliverr for $2.1 Billion: M&A Snapshot
The purchase of Deliverr -- which provides two-day delivery services for companies including Amazon, EBay, Etsy, and Walmart -- more than doubles the size of Shopify’s fulfillment team. The transaction will be financed using 80% cash and 20% Shopify Class A shares.
The deal marks the beginning of one of Shopify’s most important and definitive long-term initiatives, according to KeyBanc Capital Markets analyst Josh Beck. To build its own fulfillment network, Shopify needs an experienced team with established technology, which it gains with Deliverr. But the process is expensive and takes up time and resources, he noted.
“With the way the stock is trading, investors are focused on the extra dilution associated with the Deliverr deal,” Beck said in an interview. “In this market environment, that message of less near-term profitability and more investment is not well received, particularly by short-term investors.”
Shopify has had a rough start to the year. A parade of analysts slashed the company’s price target ahead earnings. In a bid to draw retail investors, Shopify announced in April plans to split its stock 10-for-1.
The company is also seeking to make governance changes that would give Chief Executive Officer Tobi Lutke a “founder share” that will preserve his voting power as long as he’s at the company, under certain conditions.
When asked why shareholders should vote in favor of the plan, Lutke pointed out his voting power will be capped at 40% and he’ll be forbidden from passing on the special share to his family.
“Shareholders can get some assurance that this is a structure that supports the founder-led-ness of the company,” Lutke said.
When asked on the conference call about how the company’s beleaguered stock is affecting its ability to attract and retain talent, Lutke said that employees want to work for and investors look to buy companies based on their values -- and stock performance plays a small part.
“The stock price is something that factors into this, but it’s one input of many,” Lutke said. “Most people tend to understand that the stock price is a snapshot in time.”
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