Shopify shares rise sharply after earnings beat analysts’ estimates

Shopify shares popped on Thursday after it beat analysts’ estimates for the third quarter, despite it warning that the strong US dollar, higher inflation and rising interest rates would hit customers’ spending power.

Shares in the US ecommerce group rose 17 per cent in morning trading in New York after it posted revenue of $1.37bn in the three months to September 30, above consensus estimates and up 22 per cent on the previous year.

Operating losses widened to $345mn, compared with $4mn in the same period last year. This marked a third consecutive quarter of operating losses, as sales growth has slowed and the company has invested in its supply chain, with the $2.1bn acquisition of logistics company Deliverr.

“This year is an investment year,” Shopify president Harley Finkelstein told analysts. “This is a company that ultimately wants to be profitable and we would like to get back there”, although he did not put a timeframe on the return to profitability.

Shopify allows brands and independent retailers to sell directly through their own websites or social platforms, rather than trading through Amazon or other large marketplaces.

Its market capitalisation soared during the pandemic as consumers turned to online vendors during lockdowns, peaked at $212bn in November 2021. The share price rise on Thursday comes in the wake of a 75 per cent decline this year.

“This is one of those posterchilds of pandemic growth [for which] all the stars were aligned,” said Tyler Radke, US software analyst at Citi. “Things really flipped this year with the [Federal Reserve] raising rates, energy prices going up, consumer spending coming under pressure and inflation ”

Chief executive Tobi Lütke cut a tenth of the workforce in July, saying that the company’s “bet” on a permanent increase in the amount consumers spent online relative to retail stores had failed to pay off.

Department of Commerce data show that online US retail sales made up 13.9 per cent of total retail sales in the second quarter, down from 15.9 per cent in the fourth quarter of 2021.

Sales growth in the third quarter was also limited by the “significant strengthening” of the US dollar relative to foreign currencies, Shopify said, affecting its international business.

Commenting on Thursday’s share price move, Radke added: “There are a lot of concerns around ecommerce, advertising and spending, with the disappointing Snapchat and Facebook results. People were positioned negatively for this.”

Predicting that higher inflation and rising interest rates would hit customers’ spending power, Shopify said it expected total revenue to be “more evenly distributed across the four quarters, similar to 2021”.

Analysts had predicted a boost in final quarter revenues to $1.63bn. Losses would reach a similar level in the fourth quarter, compared with consensus estimates of less than $300mn.

Shopify’s ecommerce rival Amazon will report later on Thursday. Analysts expect sales growth to rebound slightly, bolstered by its Prime Day in July.