Shopify Predicts Slowing Revenue; Investors Sink Stock

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Shopify stock fell more than 18% in morning trading Wednesday after the Canada-based e-commerce platform said it expected the COVID-induced economic boom to subside this year even as it said retail would continue to embrace e-commerce.

"Our outlook for 2022 assumes continued secular tailwinds for entrepreneurship and digital commerce transformation against a more measured macro environment relative to 2021," the company said in a release announcing its Q4 2021 and full-year economic results. "While we believe that the COVID-triggered acceleration of e-commerce that spilled into the first half of 2021 in the form of lockdowns and government stimulus will be absent from 2022, and there is caution around inflation and consumer spend near term, for the full year we see economic growth supporting the continued penetration of retail by e-commerce."

Shopify SHOP said despite this it expects revenue growth to continue in 2022, although it will come in lower than the 57% growth achieved in 2021.

"We believe that changed behaviors adopted by merchants and consumers in 2020 and 2021 driven by COVID have significantly expanded the prospects for entrepreneurship and digital commerce," it said. "And these past two years have been transformational to Shopify, with our GMV, revenue and employee base doubling since the end of 2019 and with nearly twice the number of merchants leveraging Shopify to launch and scale their businesses. This momentum sets us up to expand our ambitions on behalf of merchants into 2022 as the world continues to find normalcy living with and moving beyond COVID."

The company's outlook calls for lower year-over-year revenue growth in Q1 this year, with the highest growth coming in Q4, citing the lack of government stimulus and the elimination of revenue sharing on the first million dollars of partners' revenue resetting on Jan. 1 as impacts to early-year revenue. Still, Shopify remains confident in continued growth of e-commerce.

"The evolution of retail to digitally empowered commerce is far-reaching, ranging from new ways for merchants to improve buyer discovery and loyalty, to new commercial opportunities on social channels, to a data-enabled revolution in shipping and logistics," it said.

Total revenue in 2021 Q4 was $1.3 billion, up 41% year-over-year, driven by a 26% increase in subscription solutions revenue ($351.2 million) and a 47% increase in merchant solutions revenue ($1.02 billion). Monthly recurring revenue (MRR) was $102 million, surpassing $100 million for the first time, and up 23% year-over-year. Shopify Plus added $29.8 million to MRR.

Gross merchandise volume (GMV) increased $12.9 billion to $54.1 billion and gross payments volume (GPV) reached $27.7 billion to account for 51% of GMV.

Shopify posted an adjusted gross profit of $700.6 million, up 37% from 2020 Q4. Adjusted operating income was $130.2 million. Net loss for Q4 was $371.34 million or $2.95 per basic and diluted share compared to net income of $123.9 million and 99 cents in 2020 Q4. Adjusted net income was $172.8 million or $1.36 per share.

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For the full year, Shopify announced total revenue of $4.6 billion, up 57% from 2020. Subscription solutions grew 48% to $1.3 billion and merchant solutions increased 62% to $3.2 billion.

GMV was $175.4 billion, up 47% year-over-year, and GPV was $85.8 billion, up 45%. Gross profit grew 61% to $2.4 billion and adjusted gross profit increased 60% to $2.5 billion.

Operating income was $286.6 million and adjusted operating income increased to $718 million or 16% of revenue. Net income was $2.9 billion or $22.90 per diluted share compared to $319.5 million and $2.59 in 2020. Adjusted net income was $814.4 million or $6.41 per share compared to $491.3 million or $3.98 in 2020.

"The last two years have been extraordinary," said Shopify President Harley Finkelstein. "We nearly tripled revenue, more than doubled GMV and the Shopify team, and the number of merchants using Shopify is nearly twice as big as 2019 levels. We are emerging from the sprint of these last two years even stronger and more ambitious, since the accelerated leap into digital commerce means we can go farther faster for merchants and buyers alike."

Fulfillment challenges

Shopify came under fire last month for fulfillment network changes. Wall Street was spooked about the changes, fearing that the company would be investing heavily in fulfillment centers. Shopify stock has fallen from its high of $1,778 per share on Nov. 18, but it has fallen more than $200 per share since the fulfillment news broke.

On the earnings call, the company sought to quell those fears.

"We are leveraging our learnings to date to continue building simple and fast fulfillment. We are consolidating our network into larger facilities; we are shifting to operate more of them ourselves to better control quality and cost; and we are unifying the network by operationalizing our warehouse management system to highly integrate with Shopify's back office and checkout so merchants can seamlessly offer and achieve delivery promises," it said.

Click for more articles by Brian Straight.

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