Shares of Shopify (NYSE: SHOP) continued to slide in pre-market trading on Thursday even as the Canadian e-commerce company’s Q4 results beat estimates. But investors were left disappointed with the company’s Q1 outlook.
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SHOP expects its Q1 revenues to grow in the “high-teen percentages” year-over-year below consensus estimates of a 20% growth. The company has projected its operating costs to rise in the “low-single digit percentages” year-over-year.
The company pointed out two major issues that could affect its profitability this year. These include its new compensation framework and expenses related to its Shopify fulfillment network after its $2.1 billion acquisition of Deliverr.
Shopify changed its compensation system late last year enabling its employees to choose the way their total compensation is split between cash and equity and this system to be better aligned with the market. This has resulted in higher compensation expenses, primarily in terms of research and development. As a result, the company’s management stated that given the timing of these changes, “the year-over-year comparability will be impacted during the first three quarters of 2023.”
When it comes to the company’s Shopify Fulfillment Network (SFN), it expects expenses related to SFN “to be a headwind to gross margin and a significant contributor to operating expenses in 2023” with the impact likely to be most prominent in the first half of this year as its Deliverr acquisition closed in July last year. The company continues to expect inflation to remain “elevated [this year], pushing consumers to discounted and non-discretionary purchases.”
The stock has struggled big time in the past year, down by more than 25% as the company’s bet on a pandemic-fueled surge in online shopping has been misplaced. This is even as the company is trying to cut costs by laying off around 1,000 employees, expanding its offerings, and raising prices for all its merchants’ plans including Basic, Shopify, and Advanced.
Following the “solid” Q4 results, JMP Securities analyst Andrew Boone remained sidelined on the stock with a Hold rating. The analyst commented, “With 10% share of U.S. e-commerce and consistent product innovation leading to continued share gains, we view Shopify as the clear market leader for powering e-commerce and a premium valuation is warranted.”
Overall, analysts remain cautiously optimistic about SHOP stock with a Moderate Buy consensus rating based on 10 Buys, 12 Holds and two Sells.
