Shopify Down 18% on Q2 Outlook, Despite $60.9B GMV Rise

Key Takeaway

• Shopify's shares fell 18% on weak Q2 guidance despite beating Q1 earnings expectations with a 20 cents EPS and $1.86 billion revenue.
• The company forecasts a decrease in gross margins and slower revenue growth, attributing part to the sale of its logistics business.
• Despite challenges, Shopify's GMV rose 23% to $60.9 billion, indicating robust platform sales performance.

Shopify's Earnings Overview

Shopify, the Canadian e-commerce giant, reported its first-quarter earnings, surpassing Wall Street expectations with an adjusted earnings per share of 20 cents against the anticipated 17 cents. The company's revenue reached $1.86 billion, slightly above the expected $1.85 billion. Despite these positive results, Shopify's shares experienced a significant drop, falling as much as 18% in premarket trading. This decline came in the wake of the company's forecast for the current quarter, which was less optimistic than anticipated. Shopify projected a decrease in gross margins by about 50 basis points for the second quarter, attributing this to the sale of its logistics business to Flexport last May. Furthermore, the company anticipates second-quarter revenue growth at a high-teens percentage rate year-over-year, marking a slowdown from previous periods.

Financial Performance and Market Reaction

Shopify's financial performance revealed a net loss of $273 million, or 21 cents a share, a stark contrast to the profit of $68 million, or 5 cents a share, reported during the same quarter last year. This unexpected loss, particularly after a year of significant profit, contributed to the sharp decline in Shopify's stock price in premarket trading. The company's shares, which had rallied more than 120% last year, have faced challenges in 2024, with performance roughly flat, lagging behind the Nasdaq 100 Index. This downturn is attributed to higher projected operating costs and an uncertain economic environment coupled with tepid consumer spending. Additionally, the sale of its logistics business has impacted Shopify's financial results, contributing to the slowdown in revenue growth to 23% in the first quarter from an average of 26% over the past four periods.

Strategic Moves and Gross Merchandise Volume

In response to a late-pandemic slump, Shopify has undertaken strategic initiatives to revitalize its business. These efforts include a significant reduction in workforce, with more than 2,000 jobs cut in May, and the divestiture of the majority of its logistics unit to Flexport Inc. Moreover, Shopify has partnered with Amazon to allow merchants on its platform to use the "Buy with Prime" service for package deliveries. Despite these challenges, Shopify reported a 23% increase in gross merchandise volume (GMV) to $60.9 billion in the first quarter, surpassing Wall Street's projections of $59.5 billion. This growth in GMV indicates a continued strong performance in the total volume of merchandise sold on the platform.