Shopify’s shares hit a 6-month low after quarterly growth slows

Canadian e-commerce platform Shopify forecast its slowest quarterly revenue growth in two years against the backdrop of an uncertain economy and tepid consumer spending, sending its shares slumping about 20 per cent, on Wednesday.

Its shares on the Toronto Stock Exchange hit their lowest in six months and the company was on track to lose $25 billion in market value as the dour outlook overshadowed its first-quarter results, which beat expectations.

While e-commerce growth has rebounded from a post-pandemic slump, it comes at a time when cautious consumers are cutting down on discretionary spending, denting Shopify’s efforts to integrate AI-based tools into its products and price hikes.

Adding to the pressure, the company’s core clientele is made up of small- and medium-sized businesses that have been more susceptible to the hit from stubborn inflation.

Price increases will provide a smaller benefit in the current quarter compared to the prior period, finance chief Jeff Hoffmeister said on a post-earnings call.

“In the second quarter, we begin to lap the initial pricing changes on our standard plans that went into effect in April of 2023, resulting in a headwind to our revenue growth quarter-over-quarter.”

Shopify said on Wednesday it expected second-quarter revenue to grow at a percentage in the high teens, disappointing investors who had seen average growth of about 26 per cent over the past few quarters.

Analysts estimated current-quarter revenue to grow 19.35 per cent, according to data from financial company London Stock Exchange Group.

Shopify also expects operating expenses to increase by a low-to-mid-single digit percentage rate in the second quarter, compared with a four per cent fall in the first three months of the year.

The results included the impact of the sale of its logistics arm to freight forwarder Flexport.

“Despite a strong Q1 report, the forecast for margin contraction and lighter-than-expected Q2 revenue is sounding the alarm bell for investors,” said Charlie Miner, analyst at Third Bridge.

Shopify reported first-quarter revenue of $1.86 billion, compared with analysts’ average estimate of $1.85 billion.

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