Shopify warns of greater losses ahead as e-commerce slowdown hurts earnings outlook

The exterior first bricks-and-mortar location for Shopify is shown in Los Angeles in this photo.HO/The Canadian Press

Shopify Inc. reported a quarterly loss and warned of greater losses ahead as the Ottawa technology company confronts a slowdown in e-commerce that prompted it to cut 10 per cent of its staff this week.

Shopify SHOP-T said it expects adjusted operating losses in the third and fourth quarters this year will exceed those of the second quarter, which showed an operating loss of US$41.8-million, the company reported Wednesday. Amy Shapero, the company’s chief financial officer, said Shopify has grown its operating income over the past five years, but is now expecting that 2022 “will end up being different, more of a transition year, in which e-commerce has largely reset to the pre-COVID trend line.”

The company posted a second-quarter net loss of US$1.2-billion, or 95 US cents per share, compared with a profit of US$879.1-million a year earlier, or 69 US cents per share. On an adjusted basis, Shopify reported a loss of 3 US cents per share, while analysts had expected a profit of 2 US cents.

The company’s gross merchandise volume, a figure that shows the value of sales through Shopify’s platform, grew 11 per cent to US$46.9-billion this quarter, but that, too, missed estimates of US$48.6-billion. Revenue was up by 16 per cent year-over-year to US$1.3-billion, which was also slightly under projections of US$1.33-billion.

The results underscore the difficulties facing Shopify as it battles a broad slowdown in its core e-commerce business. Consumers are shifting to more physical-store shopping and tightening spending while surging inflation and economic uncertainty.

Shopify on Tuesday internally announced it was cutting about 1,000 jobs, roughly 10 per cent of its workforce, as Chief Executive Officer Tobi Lutke acknowledged he overestimated the growth of e-commerce and that Shopify had hired too many people as a result. “I got this wrong,” he said in a memo to employees.

It is the second quarter in a row that Canada’s tech leader has missed analyst expectations. In the first quarter this year, Shopify fell short for the first time since it went public in 2015.

Samad Samana, managing director and analyst at Jefferies Group LLC, told clients in a note on Wednesday that second-quarter financial results show trends for e-commerce are “deteriorating even more swiftly than expected.”

More to come.

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