Shopify stock skids despite solid Q1, rosy outlook

Canadian e-commerce giant Shopify posted solid first-quarter revenue and earnings figures on Tuesday, but questions about lower margins and decelerating growth appeared to weigh on investors, who pushed the company’s high flying shares sharply lower.

For the quarter ended March 31, the Ottawa-based company saw revenue rise 68 per cent to US$214.3 million and its adjusted net income per share of US$0.04 beat consensus estimate from analysts of a loss of US$0.05 per share.

It also raised its revenue guidance for the 2018 fiscal year. Chief financial officer Amy Shapero, who joined Shopify in early April, said the company now expects revenue to be between US$1 billion and US$1.1 billion for the year, up from the US$970 million to US$990 million estimate that the company delivered in February. The company posted revenues of US$673.3 million for 2017.

Despite the strong results, the company’s stock dropped about 10 per cent when markets opened, before closing down about five per cent at $163.50 in Toronto.

Suthan Sukumar, analyst for Eight Capital, attributed the drop to commentary from the company about lower margins as Shopify transitions away from in-house servers to cloud services.

Shapero told analysts on the earnings call that the company’s margins would be lower for the next two quarters due to depreciating their own servers and some duplication of services during the transition, but that it would all shake out by the end of the year.

Sukumar said he thinks the markets were overreacting, because, broadly speaking, Shopify is on the right track. “If you look at the business today, just kind of putting the margins aside, the company is pretty much delivering on every single metric,” he said.

“There’s growth momentum in every segment of their business, so I definitely think this whole stock pullback here is an overreaction to the margin outlook.”

The 68 per cent year-over-year revenue growth this quarter represents a bit of a slowing trend for Shopify, which provides an e-commerce platform that helps merchants run their online stores and manage shipping across multiple channels.

In the first quarter of 2016, it reported a 95-per-cent increase, and in the first quarter of last year it reported a 75-per-cent hike.