Shopify saw one of the biggest gains in 2022 despite the release of disappointing earnings and a weak profit outlook for the rest of the year. Its share increased 11.7 percent to $35.24 in New York. The stock witnessed a jump after executives shared details of plans to reduce expenditure and improved services for small-business customers.
During a conference call with analysts, Chief Executive Officer Tobi Lutke said that the company’s decision to build its own distribution network for the merchant customers is its riskiest bet. Making bold decisions is something “our company especially is defined by — not following some kind of orthodox playbook,” the CEO said.
We’re in the midst of a multiyear elevated inflationary environment, so I expect the same pressure on discretionary spend next year as well.
Tom Forte, DA Davidson analyst
Q2 Loss
As per data compiled by Bloomberg, the Ottawa-based company posted 3 cents per share loss on an adjusted basis in the second quarter. The depressing results came just a day after Shopify announced laying off 10% of its staffers. The company launched a hiring spree to meet the unexpected boost in demand during the pandemic while most of the businesses shifted their sales online.
In its second quarter earnings report on Wednesday morning, Shopify feared higher operating losses for the rest of the year, saying that inflation has started to impact the sector. “We now expect 2022 will end up being different, more of a transition year, in which e-commerce has largely reset to the pre-Covid trend line and is now pressured by persistent high inflation,” Shopify said.
Weakness Beyond 2022
As per Bloomberg report, DA Davidson analyst Tom Forte believes that while Shopify’s decision to provide payments services in physical stores might help the company cope with the e-commerce slowdown, investors should be ready for weakness beyond 2022. “There’s tremendous uncertainty on what e-commerce revenue looks like the next 18 months,” Forte said in an interview with Bloomberg.
“We’re in the midst of a multiyear elevated inflationary environment, so I expect the same pressure on discretionary spend next year as well.”
The gross merchandise volume of Shopify missed the $48.6 billion estimates and rose 11 percent to $46.9 billion during the quarter. Elevated inflation and the threat of a recession have brought a shift in consumer habits. Earlier this week, retail stocks plummeted after Walmart Inc. made a sudden cut to the company’s profit outlook.
