Shopify’s stock took a significant hit, plummeting by 19 percent on Wednesday and wiping out billions in market value following the company’s projection of slower sales growth and a dip in gross margins.
While Shopify’s first-quarter results exceeded analyst predictions, investors remained concerned about the decelerating growth. The e-commerce software firm anticipates a slowdown in sales growth for the upcoming quarter, despite expecting resilient consumer spending in North America.
In the second quarter, Shopify foresees sales growing at a high-teens percentage year-over-year, a decrease from the robust growth rates seen in recent quarters, averaging about 26 percent. This projection, if realized, would mark the slowest quarterly revenue expansion in two years. Adjusting for the divestiture of Shopify’s logistics business, revenue rose by 29 percent in the first quarter, marking the fourth consecutive quarter of over 25 percent revenue growth, excluding logistics.
Additionally, Shopify anticipates a decline in gross margins by approximately 50 basis points in the second quarter, while operating expenses are expected to rise by low-to-mid single digits.
The announcement triggered a sharp decline in Shopify’s stock, plunging by as much as 21 percent in early trading on the Toronto Stock Exchange before closing the day nearly 19 percent down.
William Blair analyst Arjun Bhatia observed that Shopify’s failure to meet lofty investor expectations, coupled with its premium valuation, likely contributed to the negative market reaction. However, he reiterated Shopify’s strong long-term prospects in the market.
Shopify attributed its revised forecast partly to the sale of its logistics business to U.S.-based Flexport, announced in May last year. Currency headwinds from a robust U.S. dollar and soft European consumer spending, particularly in the United Kingdom, also influenced the company’s guidance, as highlighted by Shopify’s chief financial officer Jeff Hoffmeister during a conference call with analysts. Hoffmeister noted that the introduction of price hikes across its monthly plans last year also played a significant role in the altered growth trajectory.
