Yahoo Finance Shopify stock plunges after issuing a weak outlook for 2023
Drop comes a day after company reported Q4 earnings that surpassed analyst expectations
Shopify's stock (SHOP.TO)(SHOP) plunged 15 per cent on Thursday, after the company issued a weaker-than-expected outlook amid rising costs and a challenging macroeconomic environment.
Shares of the e-commerce software company closed the trading day on the Toronto Stock Exchange at $60.39 per share, a decline of 15 per cent compared to the previous day's close.
The drop comes a day after Shopify reported fourth-quarter earnings that surpassed analyst expectations. But the weaker-than-expected guidance for the first quarter of 2023 weighed on the stock Thursday.
"While our financial outlook assumes that the COVID-triggered acceleration of e-commerce continues to return to a more normalized rate of growth in 2023, there is elevated inflation and continued caution around consumer spending due to a variety of macroeconomic factors," the company said in a press release alongside earnings on Wednesday.
The company says it expects total sales growth to be in the high-teen percentages on a year-over-year basis, and its gross margin will be slightly higher than in the 46 per cent reached in the fourth quarter of 2022. Analysts had been expecting an annual revenue growth rate of 20 per cent.
Shopify's chief financial officer Jeff Hoffmeister said on a conference call with analysts on Wednesday that compensation and elevated costs related to its fulfilment network will impact profitability expectations for the next year.
"We went through an extensive benchmarking exercise to help us make sure that within Shopify the right people are getting paid the right amount," Hoffmeister said, adding that the process resulted in higher compensation expenses starting in September 2022, primarily in research and development.
"Given the timing of when we initiated these changes, the year-over-year comparability will be impacted during the first three quarters of 2023."
ATB Capital Markets analyst Martin Toner says in a note to clients that "a weak outlook for (the first quarter of 2023) revenue spoiled what was a very strong quarter."
"Good quarter, bad guidance," he wrote, reiterating an "outperform" rating on the stock while increasing the one-year price target from $75 per share to $82 per share.
CIBC analyst Todd Coupland also reiterated an "outperform" rating on the stock, writing in a note to clients that "our view is that Shopify is being conservative due to macro concerns and seasonality."
"Despite this, the recent merchant plan price increase and accelerated retail spending confirmed by our own (Shopify Plus) merchant web traffic analysis support better growth as 2023 progresses," Coupland wrote.
"Despite 2023 recession concerns, Shopify's growth rate continues to normalize towards more realistic levels."
Shopify's stock has been under pressure amid a broader tech rout and concerns about falling consumer demand. Shares of the e-commerce platform company are down approximately 71 per cent from the high reached in November 2021.
Last summer, Shopify announced it would lay off 10 per cent of its staff, with chief executive Tobi Lütke saying at the time that the company erred in betting the share of people making online purchases in retail would permanently jump ahead by five or 10 years.
Alicja Siekierska is a senior reporter at Yahoo Finance Canada. Follow her on Twitter @alicjawithaj.
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