Is Shopify Stock available to buy now?

Shopify‘with (STORE -8.62%) shares fell 15% on May 5 after releasing their first-quarter report. The Canadian e-commerce provider’s revenue rose 22% year-over-year to $ 1.2 billion, but missed analysts ’estimates by $ 40 million. Its adjusted net income fell 90% to $ 25 million, or $ 0.20 per share, which also exceeded analysts’ expectations by $ 0.45.

Based on generally accepted accounting principles (GAAP), Shopify recorded a staggering net loss of $ 1.5 billion, compared to a net profit of $ 1.3 billion a year ago. That calculation included $ 1.6 billion in investment-related losses and $ 118 million in share-based compensation costs.

The online retailer is getting ready to deliver the order.

Image source: Getty Images.

Those numbers were ugly, but Shopify has already given up more than two years of winnings and is about 75% below its all-time high. Is it time to take the opposite view and accumulate some stocks of this hated stock?

Shopify slowdown after locking

Shopify had already generated strong growth in gross merchandise (GMV), gross payment (GPV) and revenue before the pandemic hit. However, all three growth indicators accelerated in 2020 as the pandemic spread and forced more and more retailers to open online stores.

Those winds faded in the second half of 2021 as more businesses reopened. Shopify slows GMV, GPV and revenue growth in the first quarter of 2022 reflects these difficult year-on-year comparisons:

Growth (YOY)

2019

2020

2021

First quarter of 2022

GMV

49%

96%

47%

16%

GPV

55%

110%

59%

27%

Income

47%

86%

57%

22%

Data source: Shopify. YOY = Year after year.

The company faced difficult comparisons with its GMV growth of 114% and GPV growth of 137% in the first quarter of 2021, prompted by government incentive checks and closure measures. In addition, inflationary winds are said to have exacerbated its slowdown from the previous year by pushing consumers from online stores to discount retailers.

Shopify did not mention it AppleiOS update during a conference call, but that change – which allows users to opt out of tracking ads – could also hurt smaller retailers who rely on Meta platform‘Facebook and Instagram to sell their products.

Shopify Payments, on the other hand, continues to grow. It processed 51% of its GMV within that integrated payment system during the first quarter, an increase from 46% a year ago and 42% in the first quarter of 2020. This ongoing expansion could lock more retailers and widen its trench against large payment platforms As PayPal Holdings.

But its costs are rising

The short-term slowdown in Shopify is not surprising, as many other e-commerce companies face similar challenges. However, its adjusted gross and operating margins declined significantly in the first quarter.

Period

2019

2020

2021

First quarter of 2022

Adjusted gross margin

55.7%

53.5%

54.4%

53.7%

Custom operating margin

2.9%

14.9%

15.6%

2.6%

Data source: Shopify.

Adjusted gross margin fell 280 basis points from a year earlier to 53.7% as Shopify recognized a higher revenue combination with a lower margin than its Merchant Solutions and Shopify payments business. Its cloud infrastructure investments and revenue-sharing agreements with third-party application and theme developers have also exacerbated that compression.

Meanwhile, its adjusted operating margin fell from 21.3% to 2.6% as it expanded its research and development (research and development), data, sales and marketing teams. These larger investments were not surprising as Shopify has been aggressively expanding its own fulfillment network in the last three years.

However, Shopify has blinded investors with its plan to buy Deliverr, a provider of fulfillment technology, for $ 2.1 billion (80% cash and 20% Class A shares) to expand that fulfillment network. His newly created Class B shares – which have 10 votes each and are fully controlled by CEO Tobi Lütke, his family and closest associates – will not be spent on that acquisition.

Shopify says the acquisition, which adds 400 employees to the total, will reduce both its gross and operating margins this year. In other words, it plans to increase its spending as revenue growth slows. He also gave no guidance other than vague statements by CFO Amy Shapero about “rebalancing” consumer demand in the second half of the year.

Shopify shares are still not cheap

Analysts expect Shopify’s revenue to grow 33% this year, but its adjusted earnings will fall 50%. Based on those estimates, Shopify shares are still trading at 185 times higher earnings and seven times more than this year’s sales – even though it has already given up all of its gains from the pandemic era.

However, Shopify’s disappointing first-quarter earnings report and surprise delivery of Deliverr – its largest acquisition ever – strongly suggest that those estimates are still too high. So it wouldn’t surprise me that Shopify loses at least another third of its market value before it reaches the bottom.

Shopify’s business model is still disruptive, but there simply isn’t enough reason to buy this stock in this challenging market. Investors should wait for its business to stabilize and its values ​​to cool before buying any stock.

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