Shopify Inc. reported double-digit revenue growth, but its shares dropped nearly 20% on Tuesday morning due to lower-than-expected estimates for next quarter’s revenue and margins. The company had a net loss of US$273 million in the quarter, mainly due to the fluctuating value of its equity holdings in three other companies. Shopify’s adjusted net income for the quarter was US$256 million, compared to US$12 million last year.
The company’s revenue slightly exceeded analyst consensus, increasing by 23% to US$1.9 billion. However, Shopify forecasted slower revenue growth in the high teens for the next quarter, along with a decrease in gross margin and a slight rise in operating expenses. This is due to the growth in its lower-margin payment business affecting overall margins in the short term.
Analysts have expressed concerns about Shopify’s gross margin profile and the impact of pricing changes on its subscription plans in the second quarter. The company is also facing challenges from a slower economy and high interest rates, which are affecting its small and medium-sized business clients.
Despite these challenges, Shopify remains optimistic about consumer spending in North America, although it has factored in headwinds related to foreign exchange and softness in European consumer spending in its Q2 outlook. The company is closely monitoring the macroeconomic environment to ensure that its forecasts remain consistent with current conditions.
Overall, analysts believe that Shopify’s valuation was high going into the results, and the slightly below-expectation outlook for revenue growth has led to a significant pullback in shares. However, some analysts see this as an opportunity for investors.