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Shopify Closes 2022 With $623M in Net Losses

Shopify saw fourth-quarter revenue jump 26 percent to $1.73 billion, and 28 percent on a constant-currency basis, but $623.7 million in net losses weighed heavy on the e-commerce company’s balance sheet.

Both revenue and adjusted earnings per share (7 cents) surpassed estimates of Wall Street analysts polled by Refinitiv, which called for $1.64 billion in revenue and a 1-cent loss per share.

But beating expectations wasn’t enough as the company raises prices for its services and looks to cut back spending after it already shed 10 percent of its workforce last summer. The aftermarket report on Wednesday spooked investors so much that the stock plummeted as steep as 16 percent in Thursday morning trading.

In a Nutshell: A weak revenue outlook for Shopify, which powers the online businesses of companies including Gymshark, Skims, Supreme, Allbirds and many more, has attracted concern as e-commerce spending decelerates amid slower consumer demand.

For the 2023 first quarter, revenue growth is projected to be in the high-teens, lower than analyst forecasts of roughly 20 percent, according to Refinitiv data. Gross margin is forecast to be “slightly higher” than the tech firm’s 46 percent fourth-quarter gross margin.

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The e-commerce giant is still in growth mode from a technology standpoint, launching Commerce Components by Shopify (CCS) to enable enterprise retail clients like Steve Madden and Spanx to pick and choose which features from the tech titan it wants to adopt, including one-click checkout and access to more than 100 million existing Shop Pay customers.

Shopify also introduced various product enhancements earlier in February, including a new Flexport app designed to help brands book and track ocean freight, and an advanced returns functionality powered by Loop Returns, which enables merchants to offer instant exchanges and credits.

Shopify also is further integrating the services of Deliverr, the predictive e-commerce fulfillment company it bought for $2.1 billion last year, into its own Shopify Fulfillment Network (SFN) to better position inventory closer to buyer demand.

As the company has sought to mitigate the expensive costs of this growth, it raised prices for its three main service plans in January. Shopify’s basic plan now costs $51 per month, up from $38, while its mid-range plan went to $132 from $99 per month. Shopify’s advanced plan has increased to $517 from $389.

“Profitability is a consequence of growth and efficiency combined over time,” said CEO and founder Tobi Lütke during the company’s earnings call.

Lütke noted that companies “swimming in the waters of the market” have to play the hand they’re dealt, and ultimately “change your behavior quite a bit.”

“I believe that over time, profitability will take care of itself if this is the kind of type of company you’re building,” Lütke said. “I think Shopify has played the boom [times]. Ideally, I intend to have Shopify play the more recessive times similarly well.”

Gross merchandise volume (GMV) in the period for the Ottawa, Canada-based company increased 13 percent to $61 billion, an increase of $6.9 billion over the fourth quarter of 2021, and up 17 percent on a constant-currency basis. Gross payments volume (GPV), which represents the amount of GMV processed through the Shopify Payments platform, grew to $34.2 billion, representing 56 percent of GMV processed in the quarter, versus $27.7 billion, or 51 percent, for the fourth quarter of 2021.

Gross margin for the quarter was 46 percent of total revenue, down 420 basis points (4.2 percentage points) from the 50.2 percent margin in the fourth quarter of 2021, driven primarily by contributions from the lower-margin Shopify Payments and Deliverr businesses.

Net Sales: Total net revenue at Shopify jumped 26 percent to $1.73 billion compared to the prior year’s $1.38 billion, up 28 percent on a constant-currency basis.

Merchant solutions revenue increased 30 percent to $1.33 billion compared to the prior year from $1.03 billion, up 32 percent on a constant-currency basis, driven primarily by the growth of GMV and greater revenue contribution from partners. Shopify largely derives merchant solutions revenues from payment processing fees and currency conversion fees from Shopify Payments. These revenues are directionally correlated with the level of GMV that merchants process through the platform.

Revenue in the subscription solutions department increased 14 percent to $400.3 million compared to $351.2 million in the prior-year period, primarily due to more merchants joining the platform as well as higher variable platform fees and apps.

Monthly recurring revenue (MRR) as of Dec. 31, 2022 increased 7 percent to $109.5 million compared to the prior year. The gains year over year in the number of Shopify Plus merchants on the platform and the thousands of additional retail locations using POS Pro were partially offset by the impact of the free and paid trial experiences that ran during the quarter.

Shopify Plus contributed $36.6 million, or 33 percent, of MRR compared with 29 percent of MRR as of Dec. 31, 2021.

Total revenue for the 2022 fiscal year increased 21 percent to $5.6 billion, compared to 2021’s $4.61 billion, up 23 percent on a constant-currency basis.

Within this, subscription solutions revenue grew 11 percent to $1.49 billion, up from $1.34 billion, while merchant solutions revenue grew 26 percent to $4.11 billion, an increase from last year’s $3.27 billion. Merchant solutions revenue also soared 28 percent on a constant-currency basis.

Net Earnings: In the fourth quarter, Shopify’s net loss amounted to $623.7 million, widening from last year’s net losses of $371.3 million. Diluted earnings per share losses came in at 49 cents, down from a 30 cent loss in the year-ago period.

Diluted adjusted net income came in at 7 cents per share, down from 14 cents per share last year.

Operating loss was $188.7 million, versus income of $14.4 million, or 1 percent of revenue, for the comparable period a year ago.

Adjusted operating income was $61 million, or 4 percent of revenue, compared with adjusted operating income of $130.2 million or 9 percent of revenue in the fourth quarter of 2021. The difference primarily reflects increases in compensation driven by the implementation of the company’s new compensation system and increased headcount including Deliverr.

For the full year, the e-commerce giant incurred a net loss of $3.45 billion, a massive swing compared to 2021’s $2.91 billion in net income. Diluted earnings per share losses came in at $2.73, compared to the prior year’s $2.29 gain.

Diluted adjusted net income for 2022 was 4 cents per share, down from the 64 cents per share in 2021.

Adjusted operating income for 2022 was $6.1 million, or 0.1 percent of revenue, compared to adjusted operating income of $718 million, or 16 percent of revenue, in 2021.

CEO’s Take: Lütke largely took a back seat on the call to president Harley Finkelstein, but noted that Shopify intends to go deeper into the product areas that the company has been known for, while further expanding the Commerce Components technology.

The CEO said that Shopify was a profitable business prior to being a venture-backed firm, and has been profitable “many times.”

“I think these times are very useful to get back to [profitability] and really deepen our efficiency of the business,” Lütke said. “So another priority is—specifically through the tail end of the boom times over the last decade—we grew along a couple of vectors to the point where now we can…further optimize the business, which will help a lot…So those are the priorities, deepening product into commerce, really finishing a lot of great projects that we started and building the best possible company in this space.”