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Shopify stock plunged after the e-commerce firm said it will cut roughly 1,000 workers, or 10% of its global workforce. Including Tuesday’s loss, SHOP stock has tanked over 80% this year.
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Shopify (SHOP) plunged 14% to 31.45 in morning trading on the stock market today. The beleaguered e-commerce firm reports second-quarter earnings early Wednesday.
Shopify’s revenue growth has decelerated for four straight quarters as the coronavirus pandemic fades and online shopping normalizes.
Shopify CEO Takes Responsibility
In a blog, Chief Executive Tobi Lütke took responsibility for over-estimating Shopify’s growth.
“We bet that the channel mix — the share of dollars that travel through ecommerce rather than physical retail — would permanently leap ahead by 5 or even 10 years,” Lutke wrote. “We couldn’t know for sure at the time, but we knew that if there was a chance that this was true, we would have to expand the company to match.”
He added: “It’s now clear that bet didn’t pay off. What we see now is the mix reverting to roughly where pre-Covid data would have suggested it should be at this point. Still growing steadily, but it wasn’t a meaningful 5-year leap ahead. Our market share in ecommerce is a lot higher than it is in retail, so this matters. Ultimately, placing this bet was my call to make and I got this wrong. Now, we have to adjust. As a consequence, we have to say goodbye to some of you today and I’m deeply sorry for that.”
Prior to job cuts, analysts modeled a reacceleration in revenue growth for SHOP stock in 2023, despite worries the U.S. economy will fall into a recession.
June-quarter earnings for Shopify stock are due early Wednesday. Analysts project revenue growth of 19% for SHOP stock, down from 22% in the March quarter.
Will June Quarter Mark A Trough?
Wall Street predict 26% revenue growth in the September quarter and 28% in the December quarter.
That’s a big comedown from Shopify’s pandemic peak. Its revenue surged 86% in 2020 and 57% in 2021. While growth is expected to slow to 24% this year, consensus estimates call for 29% sales growth in 2023.
“We believe 2023 will be a pivotal year as it relates to early indicators of payoff from strategic growth investments,” Truist Securities analyst Terry Tillman said in a Q2 preview. “The Street and us expect a material growth acceleration into 2023.”
Shopify sets up e-commerce websites for businesses and partners with others to handle digital payments and shipping.
Shopify is building a U.S. distribution network to store and ship products for its merchant customers. The company recently closed its purchase of fulfillment operator Deliverr for $2.1 billion.
“Shopify is entering a major investment cycle as it offers fulfillment services to merchants, which we believe will limit margin expansion and free cash flow generation,” JMP Securities analyst Andrew Boone said in a report.
Shopify Second-Quarter Revenue Miss?
Analysts expect Shopify to eke out a profit of 8 cents a share in 2022 and 21 cents in 2023 vs. earnings per share of 64 cents in 2021.
At RBC Capital Markets, analyst Paul Treiber said Shopify’s Q2 revenue may miss consensus estimates. And the company may point to currency exchange rates as a factor, he said in a report. The U.S. dollar has surged.
Evercore ISI analyst Mark Mahaney also is cautious.
“Based on intra-quarter data points, we view the Street’s current Q2 and Q3 revenue estimates as ballpark reasonable, with slightly greater downside variance,” Mahaney said.
Follow Reinhardt Krause on Twitter @reinhardtk_tech for updates on 5G wireless, artificial intelligence, cybersecurity and cloud computing.
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