Shopify Shares Fall 18 Because They Said… | The Economic Ninja
Summary
Transcript
Shopify shares just had a massive drop of 18%. And it comes because of the guidance that they gave, very weak guidance. It’s interesting to me how the FAANG stocks and all of these massive companies that became massive because their shares exploded in the recent years are now starting to drop. And when you see large companies go into correction, Nvidia, Apple, I’m not saying they’re in correction yet, but we’re talking when they see five, 10, 15% drops, it takes a massive amount of the stock market down with it. But what it also does is it takes a lot of confidence in the market down with it.
Let’s go through this story, and then I’m gonna talk a little bit and let’s come to some conclusions together. So it says here, Shopify shares tumbled 18% today, shaving almost $20 billion off the company’s value after the company gave revenue and profit guidance for the current quarter that spooked investors. Now again, Shopify is 100% driven by the consumer, right? Sure, lots of companies are, but Shopify sells a lot of things that people don’t need to live with, right? When we see companies like Amazon, Shopify and others give guidance that says, in the future we see things not going as well as they have in the past, it’s because they 100% know the characteristics of their buyers.
They know their buyers better than anyone. They know their habits, their traits. There’s databases of information that is fed into computers for these companies benefit based off of your shopping habits. It says here’s what the company did for the first quarter and I’ll just run through these real quick. Compared with consensus expectations, earnings for share of 20 cents, adjusted versus 17 cents expected. That’s good. Revenue 1.86 billion versus 1.85 billion expected. That’s great too. The better than expected first quarter results were overshadowed by Shopify’s outlook for the current quarter, okay? So they’re seeing the fall right now and what they’re doing is they’re trying to prepare shareholders to please not sell their stock.
That’s what they’re doing. So they’re telling you, they’re giving you insights into the future so that they don’t hit you with the truth in the next quarterly filing, right? Q2 and then investors run for the hills. So they’re preparing the investor right now. It says the Canadian e-commerce company said it expects second quarter revenue to grow at a high teens percentage rate year over year, which is in line with consensus estimates for growth of 19.5%. But it still represents a slowdown from recent quarters. Shopify has posted year over year revenue growth in the low to mid 20s for the past six quarters.
So it’s really been growing, right? On a conference call with analysts, Shopify executives said consumer spending in the US remains strong but we have factored in headwinds related to foreign exchange from the strong US dollar and from softness in European consumer spending in our quarter two outlook. Gross margins for the second quarter are expected to decrease by about 50 basis points compared to the first quarter as a result of the sale of Shopify’s logistics business to freight forwarder Flexport last May. Meanwhile, Shopify says it expects operating expenses to increase in the low to mid single digits quarter over quarter while Wall Street had projected flat growth.
So the job of the C-suite execs when this kind of information is put out to Main Street is to soften a blow. And they’re obviously seeing right now the consumer’s slow their spending. I think that we are seeing a massive shift in the nation when it comes to the realization that things aren’t as great as they once were. And I think you’re seeing that happening that people are sort of regressing. Now it says here, Shopify, which makes tools for companies to sell products online in recent quarters has stepped up its artificial intelligence features for business, including Shopify magic.
It says without a clear positive impact on gross merchandise volume and revenues from recent investments, investors will question the margin trajectory, which will re-rate the stock a bit. The Bayard analyst wrote, they have an outperform rating on Shopify stock. While it has invested in AI, Shopify has pulled back in other areas like logistics services. Last May, the company laid off 20% of its workforce as it navigated a post pandemic slump in e-commerce. Again, why didn’t delay off 20% of your employees? Because you’re selling a lot less product. End of story, you’re making less money. You don’t have the money for employees.
But that in and of itself actually causes the stock to move up in a lot of cases. Just recently we’re seeing where companies are starting to lay people off, the announcements come out and it actually hurts the stock. Shopify president, Harley Finkelstein said in an interview with CNBC Squawk on the Street that the company is long-term focused. We wanna be able to make those investments for the future which is why we gave the guide we did. The company reported a loss of 273 million or 21 cents per share compared with a profit of 68 million or five cents a share during the year ago quarter.
So I’m gonna repeat that one more time. When we’re talking about how bad some of these companies are growing, right? It talks about, because there’s all these different metrics when you’re talking about stock analyzing stocks between cashflow and earnings per share and income ratios, all that stuff. The company reported a net loss of 273 million or 21 cents a share compared with a profit of 68 million or five cents per share profit during a year ago quarter. It’s losing money. This is a big shift from last year. I think you’re gonna see more and more earnings coming out like this.
As the large companies, especially the FAANG stocks start to really add to the pressure and drag the indices down, you’re gonna see going into this fall a massive change in investor sentiment. I hope you got something out of this. The Economic Ninja is out..
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