Shopify shares tumbled Wednesday amid December quarter earnings, revenue and overall merchandise volume that beat consensus estimates. Management said that marketing investments for SHOP stock will rise in 2022 to stimulate growth in merchant customers, while also increasing capital spending.
The higher investments come as the coronavirus pandemic fades and e-commerce growth returns to normal. Canada Shopify (a store) reported fourth-quarter earnings before the market opened on Wednesday.
Shopify is building a US distribution network to stock and ship products to its merchant customers. In an earnings call with analysts, management outlined plans to increase investments in the Shopify Fulfillment Network. Shopify aims to offer 2-day delivery in the US
“Shopify expects to increase its fulfillment network capital expenditures in 2022 and to have approximately $1 billion in capital expenditures in 2023 and 2024, specifically for major warehouse centers in the United States,” Stifel analyst Scott Devitt said in a report. “The company will invest heavily in strengthening its fulfillment network in larger and more controlled facilities which will provide better quality control and ultimately operational savings.”
Store Inventory: Hard Year-on-Year Comparisons
Total merchandise volume from merchant customers increased 31% to $54.1 billion versus estimates of $53.03 billion.
Shopify stock is down 17.9% to 730.51 in the afternoon stock market today.
“The big unknown here is the Shopify Fulfillment Network,” Evercore ISI analyst Mark Mahaney said in a report. “Now more than ever, investors will have to trust management is an efficient capital allocator with announced investment levels that are probably greater than investors expected. In this market environment where investors prefer near-term profitability and cash flow, we are not entirely surprised To see the stocks plummet.
For the quarter ended December 31, Shopify’s earnings came in at 1.36 cents per share on an adjusted basis, down 14% from the same period last year. The company said revenue rose 41 percent to $1.38 billion. Revenue growth slowed for the third consecutive quarter.
Analysts expected Shopify to earn $1.30 per share on revenue of $1.34 billion. A year ago, Shopify earned $1.58 per share on revenue of $978 million.
“Our initial impression is that the absolute results were strong given tough comparisons, but did not live up to buying expectations,” Samad Samana, an analyst at Jefferies, said in a report. He added that the gross profit margin of 50.8% was down from the street estimate of 52.8%.
As Shopify’s earnings report approaches, e-commerce stock is down 35% in 2022.
In the fourth quarter, Shopify said commerce solutions revenue rose 47% to $1.03 billion. Subscription Solutions revenue increased 26% to $351.2 million. Analysts expected business solutions revenue of $985 million and subscription solutions revenue of $357 million.
Shopify Stock: Management provides general revenue forecasts
For the full year of 2022, Shopify said it expects “lower year-over-year revenue growth in the first quarter of 2022 and higher in the fourth quarter of 2022.” “We do not expect the e-commerce acceleration caused by COVID in the first half of 2021 to be repeated from government shutdowns and stimulus in the first half of 2022,” the company said.
Additionally, Shopify said it expects “Merchant Solutions’ revenue growth to more than double the year-over-year revenue growth rate for subscription solutions, as merchants benefit more from our offerings, and as we expand existing products into new geographies and roll out the latest features such as Shopify Markets.”
Shopify said it plans to increase sales and marketing investments as well as $200 million in capital spending in 2022.
Additionally, Shopify had approximately $7.8 billion in cash on its balance sheet at the end of 2021.
Shopify sets up e-commerce sites for small businesses, partnering with others to handle digital payments and shipping. Also, the e-commerce company has ramped up commercial lending.
Also, the company has a relative strength rating of 13 out of a possible 99, according to IBD stock check.
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