(Bloomberg) -- Shopify Inc.’s halo is fading, with an earnings report that showed two metrics key to measuring growth growth are slowing down.
The Canadian e-commerce company’s stock sank the most in six months Tuesday despite beating estimates for first-quarter revenue, profit and full-year revenue. Gross merchant volume, the total amount of goods sold on all Shopify-run sites, grew 64 percent from a year earlier, compared with an 81 percent increase in the same quarter last year. That metric has become a key number investors zero in on.
Investors are also looking to see how much of Shopify’s revenue comes from larger, more stable merchants rather than lower-paying and more precarious ones. Growth in monthly recurring revenue, a metric that tracks the number of users and the average amount they’re paying, is also slowing down. It increased 57 percent to $32.5 million compared with growth of 62 percent in the same period last year.
To Shopify bulls, the company’s model of recruiting new users, making it easier to sell online and then selling them added services as they grow, is similar to Amazon’s "flywheel" approach, where revenue snowballs as more people use the platform. But to doubters, Shopify’s growth is too tied to small sellers who quickly leave the site only to be replaced by others. Once the company churns through enough people, there won’t be many more left to keep up growth, according to the argument advanced by shortseller Andrew Left.
Investors who used to push up the stock after consistent quarterly revenue growth are now diving deeper to look at what kind of users are driving expansion. The shares fell as much as 10 percent, the most since October, to $119.61.
The shares had gained 32 percent so far this year at the close on Monday, rebounding after
Left’s Citron Research released a report last year that called Shopify a “get-rich-quick” scheme that took 12 percent of the shares in a single day. The shares soon recovered after Chief Executive Officer Tobi Lutke called Left a “troll” and dismissed his accusations.
Despite the concern over future growth, Shopify beat quarterly estimates on most metrics. Revenue was $214.3 million in the three months ended March 31, versus the average analyst estimate of $202.4 million. The Ottawa-based company reported a profit of 4 cents a share, far outstripping the average projection for a loss of 5 cents.
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