Shopify tops expectations, but net loss widens in second quarter

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Shopify Inc. topped revenue expectations but widened its net loss in the second quarter, as the e-commerce company endeavours to gain back momentum in its core business lines after selling off its delivery and warehousing operations.

On Wednesday, the Ottawa-based company reported quarterly revenue was up by nearly 31 per cent to US$1.7-billion, compared with US$1.3-billion the year prior; whereas analysts on average had anticipated US$1.62-billion.

However, Shopify saw a net loss of US$1.3-billion or US$1.02 per share in the quarter ended June 30, 2023, higher than the expected 46 US cents per share. In the same period last year, that loss was US$1.2-billion or 95 US cents per share.

It is a set of financial results that underscores a period of transition at Shopify. “While I appreciate many want some big headline items, I don’t think there was one this quarter,” said National Bank of Canada analyst Richard Tse.

In its previous quarter, Shopify abandoned a long-held fulfilment and freight strategy, which was part of a broad push to compete against global juggernaut Amazon.com Inc. It also slashed more than 20 per cent of its work force, less than a year after cutting more than 10 per cent of its headcount around the world.

At the time, chief executive Tobias Lütke had referred to the logistics arm as a “side quest” that was distracting Shopify. Trimming down and focusing on the main mission to provide the best possible solutions for merchants is Shopify’s most logical next step, Mr. Lütke had said in a memo to staff. He added that advances in artificial intelligence technology are ushering in a new, important era, worth greater investments and energy from the company.

Since then, Shopify has completed the sale of its logistics business to San Francisco startup Deliverr Inc. Last week, the company announced a suite of new AI products and features.

But its recalibration resulted in a US$1.7-billion charge related to the recent divestiture, and severance pay from staff cuts added to an overall operating loss of US$1.6-billion, explained Shopify chief financial officer Jeff Hoffmeister in a conference call with analysts on Wednesday. Mr. Lütke did not attend that call to answer questions.

Those costs also added significantly to capital and operating expenses in the second quarter, Mr. Hoffmeister said. Shopify expects capital expenditures of nearly US$45-million for the full year, and US$33-million of that will be related to the logistics reduction, he added.

Still, the latest quarter shows that “Shopify is starting to enjoy the benefits of a more focused business,” said Gil Luria, managing director and senior software analyst for American investment bank D.A. Davidson.

“One immediate benefit is the significant ramp in profitability that came with a very muted decline in revenue. The other is growing success with larger customers that are starting to see Shopify fit within their e-commerce vision.”

Shopify’s gross merchandise volume increased to US$55-billion, climbing 17 per cent since last year, as sales made through the company’s platform expanded.

Subscriptions-related revenue also went up by 21 per cent year over year to US$444-million in the second quarter, which Shopify president Harley Finkelstein said came as a result of more merchants joining the platform and a pricing increase that went into effect in April.

Shopify forecasted that its revenue growth will likely increase at a percentage in the “low twenties” in the next quarter.

“We keep doing our best to offer the most and best value to our merchants,” Mr. Finkelstein told analysts on Wednesday. “AI is a big part of that. We’re offering superpowers to all our merchants through the most practical approach.”

But Rick Watson, chief executive of RMW Commerce Consulting, an e-commerce consultancy firm based in New York, said Shopify’s new AI features are “just the latest shiny object” for the company.

“AI is sort of like an attempt to replace Shopify’s focus on logistics. Except it’s harder for analysts and investors to understand how that will work because it can’t currently be attached to any real hard numbers,” Mr. Watson said in an interview.

Shares of Shopify fell nearly 7 per cent on Wednesday ahead of the company’s results, closing at $83.39 on the Toronto Stock Exchange. The company’s American-listed shares, however, clawed back much of that drop in after-hours trading.