Insights

Why Shopify Declined by 12.1% in May

What happened
Shares of Shopify (NYSE: SHOP) declined by 12.1% in May, according to data from S&P Global Market Intelligence.
Year to date, the e-commerce company has seen its share price fall by 72.5%.
Image source: Getty images.

So what
Shopify released a respectable set of earnings for its fiscal 2022 first quarter that saw revenue increase by 21.7% year over year to $1.2 billion. However, sales and marketing expenses along with research and development costs ballooned by 63% and 72.6% year over year, respectively. As a result, the company booked an operating loss of $98 million and a net loss of $1.4 billion.
Investors probably also thought that Shopify’s 22% revenue growth seemed pedestrian compared with the year-over-year top-line growth of 110% experienced in the prior year. The company did note that Q1 of 2021 saw the highest revenue growth in its history because of the effects of stimulus checks and COVID-19 lockdowns, thus setting up a high base for the following year. Shopify has also warned that year-over-year revenue growth is expected to be lower in the first half of this year but should head higher by the fourth quarter.
Now what
Shopify still managed to eke out a decent increase in its revenue despite the high base effect, demonstrating that merchants are still attracted to its platform. Gross merchandise volume (GMV) also climbed 16% year over year to $43.2 billion for Q1 2022 while gross payment volume took up 51% of GMV, up from 46% in the prior year. These numbers show growing adoption by merchants for Shopify’s payment solutions on the company’s various payment platforms, such as Shopify Plus, Shopify Markets, and Shop Pay.
Along with its earnings release, Shopify also announced the acquisition of Deliverr, a fulfilment technology provider, for $2.1 billion. The company will fork out cash of $1.68 billion with the remaining consideration being paid in shares. This purchase will help create an end-to-end logistics platform that enables Shopify to improve fulfilment times for millions of merchants. It will also increase access to logistics solutions for independent brands, opening Shopify up to a new customer base. Not only will Deliverr’s technology strengthen Shopify’s ability to manage inventory, but it will also allow the company to offer a new service called Shop Promise that provides customers with two-day and next-day delivery options. Royston Yang has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Shopify. The Motley Fool recommends the following options: long January 2023 $1,140 calls on Shopify and short January 2023 $1,160 calls on Shopify. The Motley Fool has a disclosure policy. –

What happened

Shares of Shopify (NYSE: SHOP) declined by 12.1% in May, according to data from S&P Global Market Intelligence.

Year to date, the e-commerce company has seen its share price fall by 72.5%.

Image source: Getty images.

So what

Shopify released a respectable set of earnings for its fiscal 2022 first quarter that saw revenue increase by 21.7% year over year to $1.2 billion. However, sales and marketing expenses along with research and development costs ballooned by 63% and 72.6% year over year, respectively. As a result, the company booked an operating loss of $98 million and a net loss of $1.4 billion.

Investors probably also thought that Shopify’s 22% revenue growth seemed pedestrian compared with the year-over-year top-line growth of 110% experienced in the prior year. The company did note that Q1 of 2021 saw the highest revenue growth in its history because of the effects of stimulus checks and COVID-19 lockdowns, thus setting up a high base for the following year. Shopify has also warned that year-over-year revenue growth is expected to be lower in the first half of this year but should head higher by the fourth quarter.

Now what

Shopify still managed to eke out a decent increase in its revenue despite the high base effect, demonstrating that merchants are still attracted to its platform. Gross merchandise volume (GMV) also climbed 16% year over year to $43.2 billion for Q1 2022 while gross payment volume took up 51% of GMV, up from 46% in the prior year. These numbers show growing adoption by merchants for Shopify’s payment solutions on the company’s various payment platforms, such as Shopify Plus, Shopify Markets, and Shop Pay.

Along with its earnings release, Shopify also announced the acquisition of Deliverr, a fulfilment technology provider, for $2.1 billion. The company will fork out cash of $1.68 billion with the remaining consideration being paid in shares. This purchase will help create an end-to-end logistics platform that enables Shopify to improve fulfilment times for millions of merchants. It will also increase access to logistics solutions for independent brands, opening Shopify up to a new customer base. Not only will Deliverr’s technology strengthen Shopify’s ability to manage inventory, but it will also allow the company to offer a new service called Shop Promise that provides customers with two-day and next-day delivery options. 

Royston Yang has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Shopify. The Motley Fool recommends the following options: long January 2023 $1,140 calls on Shopify and short January 2023 $1,160 calls on Shopify. The Motley Fool has a disclosure policy.

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