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 commercial 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.
For the quarter ended December 31, Shopify earnings were 1.36 cents per share on an adjusted basis, down 14% from the same period a year earlier. 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.
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 18.1% to 728.62 in midday trading on stock market today.
“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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