Shopify’s revenue rise not enough to assuage investors

Revenue at Canadian e-commerce giant Shopify rose by more than 60 per cent in the second quarter, but it wasn’t enough to bolster the company ’s shares against a global tech sell-off and concerns about slowing growth of key metrics.

For the quarter, Shopify posted an operating loss of US$30.8 million on revenue of US$245 million.

To some extent, the operating loss was to be expected, and management had previously warned that the company’s bottom line would be affected by one-time costs associated with migrating to cloud services throughout this year.

But other metrics that investors watch closely also gave the market pause. Revenue for the Ottawa-based firm — which provides payment, shipping, marketing and other services to merchants online, as well as services for bricks-and-mortar retailers — was up by 62 per cent year-over-year, but that represents a slowdown from 75 per cent growth in Q2 last year.

Similarly, gross merchant volume, the measure of all the merchandise sold through Shopify, grew to US$9.1 billion, an increase of 56 per cent over the same time last year. But that rate of growth was also considerably slower than Q2 in 2017, when the company reported a year-over-year increase of 74 per cent.

Shopify ’s financial reporting comes as tech stocks have been taking a beating in the markets.

Shopify shares have been sinking since Facebook’s disappointing report, and ended down another 5.54 per cent at $181.22 in Toronto.

“If you look at the fallout after the disappointing Facebook results, I think that was kind of a wake-up call for a lot of tech investors,” said Suthan Sukumar, an analyst with Eight Capital who covers Shopify. “Shopify is one of the most expensive technology stocks in the market today, so this one was always going to be more sensitive, more volatile relative to its peers.”

Shopify CEO Tobi Lutke addressed the Facebook situation during the earnings call Tuesday morning, when he was asked if the troubles with the social networking giant will have any knock-on effects for Shopify, because many online retailers rely heavily on Facebook’s targeted ads to drive sales.

Lutke said Facebook’s struggle to grow comes to down to “running out of humans on the planet” but he said he doesn’t think that will create problems for Shopify, because merchants will just come up with new avenues for their advertising.

“The internet so far has been exceptionally good at coming up with new advertising surfaces,” he said.

Behind the headline numbers, several analysts saw potential for Shopify’s growth to accelerate again.

Executives have been emphasizing their efforts to expand beyond North America, and the Shopify Plus program, which caters to larger, more established retail businesses. Financial Post