Shopify shares are falling despite big fourth-quarter profits

Shopify — which strives to be the e-commerce backend for brands of all sizes — managed to maintain rapid growth in the fourth quarter and turn a profit this year.

But Wall Street has doubts about how much it will cost to maintain the growth, putting pressure on the company’s shares and leading to Tuesday’s decline of 13.4% to $77.18.

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While e-commerce is still a game that Amazon dominates, Shopify continues to attract more sellers and sell services to brands to help them grow their businesses.

Notable players that joined the platform last year include Nike Strength, Dollar Shave Club, Banana Republic Home, Authentic Brands Group, Oscar de la Renta, Everlane and On Running.

The company’s total earnings for the fourth quarter were $667 million, a big difference from losses of $601 million a year earlier.

Revenue for the quarter ended Dec. 31 rose 24 percent to $2.1 billion, while gross merchandise volume – the value of goods sold through Shopify’s e-commerce platform – rose 23 percent to $75.1 billion.

The quarter helped Shopify turn negative for the full year, with 2023 profits of $152 million compared with losses of $3.5 billion in 2022.

Revenue for the year increased 26 percent to $7.1 billion, while GMV increased 20 percent to $235.9 billion, an increase of $38.7 billion from the prior year.

Like other tech companies, Shopify saw strong growth during the pandemic but later had to change course when growth waned. The company has cut jobs in 2022 as it refocuses its operations.

Shopify CEO Harley Finkelstein told analysts on a conference call that it had been a “phenomenal year.”

“Trade is moving fast and we have moved faster,” Finkelstein said. “We have transformed the company to be flatter, more flexible and built for every corner of commerce, without losing sight of our mission to make commerce better for everyone.

“As a result, we continue to break down barriers, increase entrepreneurial power and drive our commercial success,” he said. “No matter which way you look at our business, whether it’s sellers, products or channels, we achieved an incredible fourth quarter, capping off an incredible year of growth.”

Operating expenses in the fourth quarter fell 22 percent from a year earlier due to the sale of the company’s logistics business, lower employment and the lack of property impairment. Compared to the third quarter, expenses decreased by 1 percent.

However, Shopify said its first-quarter operating costs will increase by several percent in the first quarter compared to the fourth quarter due to marketing and employee-related expenses.

Analysts bombarded Finkelstein with questions about cost increases, but he said the company intended to remain disciplined.

“Over the last 18 months, we have made incredible improvements in our go-to-market and growth engines, which optimizes several things,” he said. “It optimizes our ways of working. It provides greater automation and efficiency, but also diversifies our marketing efforts to support our growth. This means that we can actually exercise incredible discipline and discipline when we see opportunities that will enable us to succeed. “It doesn’t mean we’re just going to spend money if we don’t see these things.”

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