Shopify SHOP-T -1.33%decrease reported double-digit revenue growth for its first fiscal quarter, but the stock slumped during morning trading as the company’s outlook fell short ofanalysts’ expectations.
Harley Finkelstein, president of the Ottawa e-commerce giant, said in an earnings call Thursday that tariffs have had little effect on the company so far. He cited the diversity of the company’s merchant base and consumers as one reason for Shopify’s strong quarter amid market volatility. The fact that more than half of U.S. customers buying from Shopify merchants have incomes exceeding US$100,000 also helps, he said.
“We believe this helps insulate our merchants from some of the potential swings in pricing or other market factors,” he said on the call.
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Shopify, which charges merchants subscription and transaction fees to use its platform, generated US$2.4-billion in revenue in the first quarter ended March 31, beating analysts’ estimates of US$2.3-billion, according to S&P Capital IQ. That was up 27 per cent from US$1.9-billion in the same quarter last year.
Shopify posted a net loss of US$682-million, with a large chunk of that attributable to its equity holdings in other companies. Excluding the impact of those investments, the company reported a net income of US$226-million, up 57 per cent.
Gross merchandise volume (GMV), the value of sales made over Shopify’s platform, was US$74.8-billion, up 23 per cent.
Shopify, which reports in U.S. dollars, forecast revenue growth around a mid-20s-percentage rate on a year-over-year basis for the next quarter. The company also expects its gross profit to rise by a percentage rate in the high teens and operating expenses to be between 39 and 40 per cent of revenue, similar to this quarter.
In a note to shareholders Thursday morning, RBC analysts Paul Treiber and Daniel Perlin expressed concern about Shopify’s forecast for the coming quarter, noting that the company’s outlook for gross profit and free cash flow is below analysts’ consensus expectations.
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Jeff Hoffmeister, Shopify’s chief financial officer, responded to questions about the discrepancies on the morning call. He cited the company’s payment partnership with PayPal, the percentage of revenue taken up by Shopify Payments and larger GMV merchants coming onto its platform as possible headwinds to its gross margins.
“Go back two years, there are a lot of good products we produced. They’re continuing to ramp. They’re ramping really well. Just given the size of the overall business, it takes a while for them to have a meaningful impact,” he said.
In recent quarters, Shopify, which operates in more than 170 countries with millions of customers worldwide, has been gaining momentum through its Plus subscriptions, targeted at large-enterprise customers.
The company’s revenue from subscriptions went up 21 per cent to US$620-million, and it made $US$1.7-billion from merchant fees, up 29 per cent. Free cash flow increased 56 per cent per cent.
While analysts are generally positive about Shopify’s long-term organic growth, many of them reduced their targets ahead of the company reporting its first quarter earnings. They cited headwinds including U.S. President Donald Trump’s lifting of the de minimis exemption on May 2 for goods imported into the U.S. from China. Previously, this exemption allowed goods valued at or below US$800 to enter the country duty-free.
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Days after Mr. Trump signed an executive order on April 2 to eliminate the de minimis exemption and amid tariff announcements, Shopify’s stocked dropped about 20 per cent alongside several other high-profile technology stocks.
Analysts expect the de minimis elimination to slightly affect the company’s GMV growth in future quarters by slowing shipments from drop shippers, which do not keep inventories but instead use Shopify’s platform to ship goods directly from foreign manufacturers to domestic consumers.
However, Mr. Hoffmeister dispelled anxiety about the recent de minimis expiration on Thursday’s earnings call, saying it wasn’t “expected to have a meaningful impact on Shopify in the near term.”
He added only 1 per cent of the company’s GMV is related to imports from China that were subject to the exemption. “We will continue to monitor its impact on our business.”
To adjust for tariffs, Mr. Finkelstein said Shopify has seen some merchants raise prices, but the increases aren’t part of a broader trend yet. Merchants are using a number of strategies, including reconsidering which countries to source goods from, when to buy inventory or which products to stock, he added.
Shopify recently introduced a number of tools to help those on its platform navigate tariffs, including local shopping features, tools to display and collect duties at checkout and international importing guides.
“We acknowledge the uncertainty ahead and are actively monitoring our data to help us support our merchants and adapt to whatever changes may arise,” Mr. Finkelstein said.
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