Shopify Stock Down 15% After Q1 2022 Financial Results Announcement

Shopify is the latest of the eCommerce giants to announce their Q1 financial results for 2022 and joins the growing roster of companies that have missed Wall St expectations and seen a stock price drop as a result.

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Whilst revenues rose 22% from the previous year to total revenue of $1.2 billion which is lower than the expectation of $1.25 billion. The results mean that Shopify earned 20 cents per share on an adjusted basis in the first quarter, again short of the analyst expectation of 64 cents.

Gross merchandise volume for Shopify grew 16% in the first quarter from the previous year to $43.2 billion. Once again lower than what analysts were expecting, which is thought to be closer to $46.5 billion.

Whilst it is clear to see that Shopify is still growing, it appears that the after-effects of the Covid eCommerce boom are still being felt as the unsustainable growth is being witnessed which is skewing the Wall Street expectations and therefore affecting the stock price. Amazon, eBay, and Etsy have all experienced the same pattern for their Q1 2022 results.

Shopify also took this opportunity to announce its acquisition of Deliverr, a fulfillment technology company for an estimated $2.1 billion. A record acquisition for Shopify which we have covered in a dedicated article here.

You can see the full announcement from Shopify regarding their financial results below.

Shopify Q1 2022 Financial Results Announcement

Shopify Inc, a provider of essential internet infrastructure for commerce, announced today their financial results for the quarter ended March 31, 2022.

“While we’ve experienced massive macro shifts since the start of the pandemic, the one mainstay has been that Shopify is the commerce platform of choice for merchants in any environment, with the ability to support commerce on any surface,”

“This has earned Shopify significant merchant trust and the ability to help them with more parts of their business, which is why we are eager to bring Deliverr’s team and technology to our merchants.”

Harley Finkelstein, President, Shopify.

“The agility of the Shopify platform was evident in our first quarter,”

“Our omnichannel capabilities helped merchants navigate the welcome return of foot traffic to their brick-and-mortar stores, and enabled them to leverage the growing volume of commerce on social, in search and in apps. Being able to offer a delivery promise and fast fulfillment across all these channels boosts conversion.  We are confident Deliverr’s ability to simplify the process, and arm merchants with visibility and control from the display of a delivery promise across multiple channels through its completion, will be a huge benefit to our merchants.”

Amy Shapero, CFO, Shopify.

First-Quarter Financial Highlights

• Total revenue in the first quarter grew 22% to $1.2 billion, which represents a two-year compound annual growth rate of 60%. The first quarter of 2021 marked the highest revenue growth in the company’s history as a public company driven by stimulus and COVID-19 lockdowns.  Shopify merchants are emerging from the last two years stronger and better prepared for commerce everywhere.
  
• Monthly Recurring Revenue1 (“MRR”) as of March 31, 2022, was $105.2 million. MRR increased 17% year over year, up from $89.9 million as of March 31, 2021, as more merchants joined the platform and the number of retail locations using POS Pro increased. Shopify Plus contributed $31.8 million, or 30%, of MRR compared with 26% of MRR as of March 31, 2021, as larger merchants seek out greater value from their digital platforms.
  
• Subscription Solutions revenue was $344.8 million, up 8% year over year, primarily due to more merchants joining the platform, and reflecting our change in terms to make selling in our app and theme stores free for partners up to their first million dollars annually, terms that were not in place in the first quarter of 2021.
  
• Gross Merchandise Volume2 (“GMV”) for the first quarter was $43.2 billion, which represents a two-year compound annual growth rate of 57% and an increase of $5.9 billion, or 16% over the first quarter of 2021. Gross Payments Volume3 (“GPV”) grew to $22.0 billion, which accounted for 51% of GMV processed in the quarter, versus $17.3 billion, or 46%, for the first quarter of 2021. GPV continued to benefit in the quarter from a strong performance by merchants on Shopify Payments, growing adoption by new merchants and merchants on Shopify Plus, Shop Pay, and Shopify Markets penetration gains, and expanded availability of our POS Pro hardware with integrated payments.
  
• Merchant Solution’s revenue was $858.9 million, up 29% year over year, driven primarily by the growth of GMV and the continued solid uptake of merchant solutions such as Shopify Payments, Shopify Capital, and Shopify Markets.
  
• Gross profit dollars grew 14% to $637.6 million in the first quarter of 2022, compared with $558.7 million for the first quarter of 2021, reflecting primarily a greater mix of lower-margin Merchant Solutions revenue, lower margins in Shopify Payments due to mix, increased investments in our cloud infrastructure, and the impact of the change in terms for our app and theme partners.
  
• Adjusted gross profit⁴ dollars grew 14% to $646.1 million in the first quarter of 2022, compared with $565.1 million for the first quarter of 2021.
  
• Operating loss for the first quarter of 2022 was $98.0 million, or 8% of revenue, versus income of $118.9 million, or 12% of revenue, for the comparable period a year ago.
  
• Adjusted operating income⁴ for the first quarter of 2022 was $31.9 million, or 3% of revenue, compared with adjusted operating income of $210.8 million or 21% of revenue in the first quarter of 2021. The difference primarily reflects the expansion of our R&D and sales and marketing teams as well as offline performance marketing initiatives.
  
• Net loss for the first quarter of 2022 was $1.5 billion, or $11.70 per basic and diluted share, compared with net income of $1.3 billion, or $9.94 per diluted share, for the first quarter of 2021. Q1 2022 net loss includes a $1.6 billion net unrealized and realized loss on our equity and other investments.
  
• Adjusted net income⁴ for the first quarter of 2022 was $25.1 million, or $0.20 per diluted share, compared with adjusted net income of $254.1 million, or $2.01 per diluted share, for the first quarter of 2021.
  
• At March 31, 2022, Shopify had $7.25 billion in cash, cash equivalents and marketable securities, compared with $7.77 billion at December 31, 2021.

First-Quarter Business Highlights

• Shopify completed the rollout of Shopify Markets to all merchants, making cross-border commerce easier for merchants worldwide. Since fully rolling out in February, tens of thousands of merchants have added or localized a market using Shopify Markets.
  
• Shopify launched LinkPop, a customizable link-in-bio tool that lets Shopify merchants and non-merchants sell products with shoppable links and gives users powerful analytics tools to see which contents and products captivate their followers.
  
• Merchants in the U.S., Canada, and the U.K. received $346.7 million in merchant cash advances and loans from Shopify Capital in the first quarter of 2022, an increase of 12% versus the $308.6 million funded in the first quarter of last year. Shopify Capital has grown to $3.3 billion in cumulative capital-funded since its launch in April 2016, approximately $486.5 million of which was outstanding on March 31, 2022.
  
• Shopify continued to build simple and fast fulfillment through Shopify Fulfillment Network, introducing an improved inbound transfer experience, easier inventory tracking across our fulfillment centers, and the ability to add new products directly in the merchant-facing app, saving merchants time, cost, and effort.
  
• Shopify announced it became the first Canadian company to sign a power purchase agreement (PPA) equivalent to powering 100% of office buildings and employee home offices across North America with wind energy.

Subsequent to First Quarter 2022

• Shopify announced its support of nine new tech-driven innovators in carbon removal through our Sustainability Fund, bringing our total carbon removal purchase commitment to $32 million. Shopify is the largest purchaser for eight and the first purchaser for four of these new partners. As the largest purchaser, we are providing companies with a strong revenue stream that helps them secure financing, and as the first purchaser, we are sending a clear market signal for others to buy from these partners.
  
• Shopify published its 2021 Global Economic Impact report, showcasing Shopify’s role in driving significant business growth and expansion for entrepreneurs and economies around the world. In 2021, businesses on Shopify generated over $444 billion in global economic impact, supporting five million jobs worldwide, up 45% and 39%, respectively, from 2020. In addition, our partner ecosystem generated $32 billion in revenue, up 45% over 2020, as our merchants’ selling drove tremendous volumes of economic activity.
  
• Shopify announced a 10-for-1 split of its Class A and Class B shares as well as updates to its governance structure, both of which will be voted on at its Annual General and Special Meeting of Shareholders in June.

Shopify 2022 Outlook

The outlook that follows constitutes forward-looking information within the meaning of applicable securities laws and is based on a number of assumptions and subject to a number of risks. Actual results could vary materially as a result of numerous factors, including certain risk factors, many of which are beyond Shopify’s control.

In addition to the other assumptions and factors described in this press release, Shopify’s outlook assumes the continuation of growth trends in our industry, our ability to manage our growth effectively, the absence of material changes in our industry or the global economy, and other assumptions related to the COVID-19 pandemic, which are described in detail below. The following statements supersede all prior statements made by Shopify and are based on current expectations. As these statements are forward-looking, actual results may differ materially.

All numbers provided in this section are approximate and include the projected impact of the planned acquisition of Deliverr.

For 2022, we expect:

• Year-over-year revenue growth to be lower in the first half and highest in the fourth quarter of 2022, as the COVID-triggered acceleration of eCommerce in the first half of 2021 from lockdowns and government stimulus is absent from the first half of 2022; our change in terms for app and theme developers eliminates Shopify’s rev share on partners’ first million dollars of revenue annually and recognizes the sale of themes on a net basis (terms that were not in place in the first half of last year), and we expect certain commercial initiatives and sales and marketing investments will gain momentum over the course of 2022.
  
• Subscriptions Solution’s revenue growth is to be driven by merchants around the world joining the platform at a level comparable to that in 2021, as we introduce new commercial initiatives and aggressively invest in sales and marketing to expand our addressable market and more deeply penetrate existing markets.
  
• Merchant Solutions revenue growth to be more than twice the rate of subscription solutions revenue growth year-over-year, as merchants make greater use of our offerings, and as we expand existing products into new geographies and roll out newer features like Shopify Markets. The increase of Merchant Solutions in our overall revenue mix means gross profit dollar growth will trail revenue growth.
  
• To reinvest all of our gross profit dollars back into the business to pursue our multiple paths to growth, including the expansion of our services to more merchants in more geographies, the development of new products, and the strengthening of our partner ecosystem to give independent brands of all sizes a way to build a strong, low-friction presence across the internet, in apps, and in person.

Factoring in the effects of an inflationary environment on consumer spending, we expect our adjusted operating results to reflect the reinvestments outlined above as well as the impact of Deliverr, which we expect to be dilutive to operating margin this year. Finally, we anticipate capital expenditures of $200 million, stock-based compensation expenses and related payroll taxes of $800 million, and amortization of acquired intangibles of $62 million. We have a long history of disciplined management of the resources at our disposal and are confident that taking decisive action this year to help merchants grow through these transitions sets us up for success for the foreseeable future.

You can see the full financial results including cash flows and balance sheets here.