Shopify Exceeds Forecast As Pandemic Pushes More Online Buyers

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Shopify Inc. released stronger-than-expected first quarter results on Wednesday, joining other e-commerce companies that experienced a similar increase as buyers moved more of their purchases over the Internet in the first weeks of the pandemic.

But the Ottawa retail software company, which has consistently exceeded profit expectations since its IPO five years ago, sounded a grim note and noted some pockets of deteriorating results in its report on profits. The release comes a month after the company withdrew its financial forecast for the year due to uncertainty about how widespread economic damage will affect the prospects for its customers, largely small businesses, and its his own.

“The vast majority of people are employed by small businesses and have the most difficulty during a crisis,” Shopify CEO Tobi Lütke said in a statement. “The release of COVID-19 will be a difficult time for all entrepreneurs. We are working as quickly as possible to support our traders by re-tooling our products to help them adapt to this new reality. Our goal is that because Shopify exists, more entrepreneurs and small businesses will get by. ”

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Shopify, whose technology platform is used by more than a million merchants to sell their products online and in stores, posted sales of US $ 470 million in the first quarter, up from 47 % compared to the same period a year ago and well above analysts’ expectations in the low to medium range of $ 440 million. The company reported a net loss of US $ 31.4 million, or 27c US per share, but analysts should focus on the company’s adjusted operating loss, which amounted to 7.3 million. US dollars, much better than expectations in the low level of 30 million US dollars. range. Shopify’s gross merchandise volume, or merchant sales through its system, increased 46.6% year over year to $ 17.4 billion, again more than expected.

The market widely expected the company’s key financial figures to recover strongly, following similar reports from e-commerce, Amazon.com and eBay, and ShipHero partner Shopify and Shopify. The US Department of Commerce also reported that the year-over-year pace of online retail sales picked up to 12% in April from 9% in March. In mid-April, Shopify’s chief technology officer Jean-Michel Lemieux also tweeted that Shopify “now handles Black Friday level traffic every day” and speculated that it wouldn’t take long before traffic has doubled or more.

This change, along with a few key Shopify announcements, including the introduction of a new mobile shopping app last week and an improved retail point-of-sale system for its brick and mortar customers, helped propel Shopify stock this year. At the close of business on Tuesday, Shopify shares were up 72.6% on the New York Stock Exchange since December 31, with a market capitalization of 80.2 billion US dollars, making it the second Canada’s most valuable public company behind Royal Bank of Canada. To put this increase in perspective, the change in business value this year exceeds the market value of Bank of Montreal.

But some analysts have warned that the stock has moved ahead and may fall or stop appreciating for several quarters, particularly as a sharp increase in unemployment casts uncertainty on the longer term outlook. end of consumer spending on non-essential discretionary items. “Our point of view is … it is really difficult to earn money” while the title is already trading between 25 and 30 times the income forecast for 2021, Canaccord Genuity analyst David Hynes wrote in a rating this week, after lowering its rating on the security to buy.

The stock fell in response to market news on the market Wednesday, slipping about 3% from Tuesday’s close of US $ 686.11 on the NYSE, while futures on the Nasdaq charged technology have increased slightly.

Shopify noted that it has reoriented its efforts to help its merchants better weather uncertain economic conditions, speeding up the introduction of new tools, offering a 90-day free trial to new merchants, offering gift card options to its customers. customers and expanding the availability of cash advances to merchants. But he also said that volumes through his point-of-sale channel fell 71% between March 13 and April 24 compared to the previous six-week period, an amount that was mainly made up of online sales. Shopify also said that more of its customers had downgraded from its higher priced Shopify Plus platform, aimed at larger merchants, to cheaper options. only in January and February. This affected its lower than expected monthly recurring revenues to US $ 55.4 million. The company, which has $ 2.36 million in cash and liquid, debt-free securities, warned in its press release “It is unclear how consumer spending levels will be sustainable in this uncertain economic environment,” or how many new traders who have signed up for stores since the start of the pandemic will “generate lasting sales”.

“Overall, the report confirms the recent bullish tale that COVID-19 was ultimately a strong tailwind for Shopify, with merchant additions and GMV trends still above expectations despite the pandemic,” said Wednesday Brian Peterson, Raymond FJames analyst, Brian Peterson.

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