Why are Shopify shares crashing?
The e-commerce company’s stock started sliding after warning of slower revenue growth in 2022 amid absence of last year’s “COVID-triggered acceleration.” Here’s why it could be a buy now.
Shares of e-commerce company Shopify (SHOP) plummeted by as much as 19% Wednesday morning despite December-quarter earnings and revenue that surpassed analyst estimates.
Shares tumbled more than $160 during the early hours of trading and the stock is currently down four of the past five days.
Here’s what happened and why the stock could still be worth a closer look for patient, long-term investors.
Why Shopify stock is falling
Shopify reported fourth-quarter and full-year 2021 earnings Wednesday morning before the bell. And despite topping consensus estimates for revenue and earnings, the stock fell on slower revenue growth guidance for 2022.
Shopify posted quarterly revenue of $1.38 billion, up 41% year over year and beating estimates of $1.34 billion. The company reported earnings of $1.36 per share, down from the year-ago quarter earnings of $1.58 per share but topping estimates of $1.21.
Driving these solid results were record-setting merchant-solutions revenue, which was up 47% year over year to $1.03 billion. This revenue is generated primarily from payment processing fees from Shopify Payments.
It was the first time the company’s merchant-solutions revenue exceeded $1 billion in a single quarter. At the same time, subscription solutions revenue climbed 26% to $351.2 million, as Shopify saw more merchants joining the platform.
Despite Shopify’s successful fourth-quarter results, Wall Street was largely unimpressed by the company’s forward guidance, causing the stock to plunge to a level not seen for almost two years.
Shopify gave a weaker outlook for growth in 2022, as online spending readjusts to a postpandemic environment that has consumers facing higher inflation.
“… the COVID-triggered acceleration of ecommerce that spilled into the first half of 2021 in the form of lockdowns and government stimulus will be absent from 2022,” the company said in a statement on Wednesday. “There is caution around inflation and consumer spend near term, for the full year.”
As a result, Shopify said it expects full-year 2022 revenue growth to be lower than the 57% increase in 2021.
Heading into Wednesday’s earnings report, Shopify’s stock had already retreated 35% in 2022. The stock is down 59% from its November 2021 high of $1,762.92.
Thinking of buying Shopify stock?
Though the e-commerce giant expects the pandemic boom to wane in 2022, causing slower revenue growth compared to last year, Shopify still expects rapid revenue growth that outpaces the overall e-commerce industry.
This growth will likely be most apparent in the last quarter of the year, Shopify says, as new contract terms with apps and theme developers will likely cause a “headwind” to its subscription revenue in the first half.
With shares now down 59% from its high last year, Shopify stock could be worth a closer look for long-term investors who see the value in the growing e-commerce space. Retail e-commerce revenue is expected to grow 73% over the next four years, exceeding $1.3 trillion dollars by 2026. Shopify currently has the largest ecommerce platform market share in the USA, according to data from Statista, with 29% of online businesses using it to power their stores.
In addition, Shopify had nearly $7.8 billion in cash at the end of 2021, and it plans “aggressive” sales and marketing investments, as well as $200 million in capital spending in 2022.
A solid 18 of 29 analysts covering Shopify shares have called it a Strong Buy or Buy, versus only 10 Holds, one Underperform and no Sells of any kind. The consensus price target stands at $2,094.05. With Wednesday’s drop, this represents a mouthwatering 187.45% increase.
For more on the e-commerce sector, read our guide to 15 key stocks.
At the time of publication, Matt Miczulski did not own shares of any equity mentioned in this story.
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