December 3, 2022

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Shopify shares hit a two-year low on lost profits and softer outlook

Shopify shares hit a two-year low on lost profits and softer outlook

(Bloomberg) — Shares of Shopify Inc. fell. to its lowest since April 2020 after it missed analyst earnings estimates and announced the largest acquisition in its history, a $2.1 billion deal for Deliverr Inc.

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Shopify is down 17% to $403.39 as of 9:47 a.m. in New York. They are down more than 70% this year.

The Canadian e-commerce software company earned 20 cents per share on an adjusted basis in the first quarter, well below analysts’ requests for 64 cents. The company gave a weaker outlook for adding new business customers in 2022, saying the growth of merchants using the platform would be “similar to” 2021.

E-Commerce Balances Fall Amid Severe Profit Inflation

E-commerce stocks have fallen this earnings season on concerns that online shopping will slow as the Covid-19 pandemic wanes. Amazon.com Inc. has suffered. The biggest one-day drop since July 2006 after it reported a weaker-than-expected revenue outlook. Wayfair, Etsy and EBay all fell in pre-market trading on Thursday.

Revenue rose 22% to $1.2 billion from a year earlier, but did not match analysts’ expectations of $1.25 billion, according to data compiled by Bloomberg.

Total merchandise volume, the value of merchant sales flowing through the Shopify platform, grew 16% in the first quarter of the previous year to $43.2 billion. Analysts expected, on average, $46.5 billion in GMV.

“While the store continues to provide less specific guidance across key metrics, new merchant feedback has been revised less,” Citigroup analyst Tyler Radke said in a note to customers. “We expect stocks to decline given the significant failure in GMV and profitability and continued headwinds in the second quarter.”

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CFO Amy Shapiro said Shopify is competing with consumers who are returning to physical stores and rising inflation, as well as a lack of employment.

“We’ve seen fewer business additions than last year and we largely attribute it to a very tight and relocating job market,” Shapiro told analysts. “We expect the labor market to start to decline.”

Deal Deliverer

Shopify also reached a deal to acquire Deliverr to expand its fulfillment services, confirming an April 20 report from Bloomberg News. In January, Shopify canceled several fulfillment and warehouse contracts intended to build its own distribution network.

Shopify to buy Deliverr for $2.1 billion: M&A Snapshot

Buying Deliverer — which provides two-day delivery services to businesses including Amazon, EBay, Etsy and Walmart — more than doubles the size of Shopify’s fulfillment team. The transaction will be funded using 80% cash and 20% Shopify Class A stock.

“The ability to deliver the promise of rapid delivery and fulfillment across all of these channels enhances conversion,” Shapiro said in a statement.

Shopify has had a rough start to the year. A parade of analysts cut the company’s price target before earnings. In an effort to attract retail investors, Shopify in April announced plans to split its stock 10 for 1.

The company is also seeking governance changes that would give CEO Toby Luttke a “founder’s stake” that would maintain his voting power for as long as he worked for the company, under certain conditions.

When asked why shareholders should vote for the plan, Lutke indicated that his voting power would be limited to 40% and he would be barred from transferring the private stake to his family.

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“Shareholders can get some assurance that this is a structure that supports the leadership of the founder of the company,” Luttke said.

(Stock price updates, details from the conference call)

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