The company posted $1.2 billion in revenues, up 22% YoY, compared to $990 million a year ago, and $25 million, or $0.20 per share in profits, against $254 million, or $2.01 per share during the same period last year. This was a huge miss against Street consensus at $0.77 per share.
The company missed estimates across other key metrics as well, with gross merchandise value coming in at $43 billion, up 16% YoY, against a forecast of $45 billion. With new merchant additions dropping to the lowest levels in years, the company’s subscription services revenues were up by a mere 8% YoY to $345 million, followed by overall Merchant Solutions at $860 million, an increase of 17% YoY.
Shopify joined other e-commerce stocks that have witnessed a pummeling during this earnings season, as the pandemic-induced shift towards online shopping started to fade in favor of brick and mortar retailers. The company did well to hedge against this eventuality with the timely roll out of its POS hardware and integrated solutions, but it still remains at a nascent stage.
The company has made substantial strides with new innovations, initiatives, and partnerships, starting with the rollout of Shopify Markets to make cross-border commerce easier for merchants around the world. Services such as Shopify Capital has disbursed $3.3 billion in merchant cash advances since inception, with $350 million during the first quarter alone.
Shopify has been firing on all cylinders when it comes to expanding its reach across the e-commerce value chain. During the quarter, the company announced a $2.1 billion acquisition of fulfillment services company, Deliverr. The company has built substantial scale and network effects over the past two years, creating a strong fortress against competitors.
The stock is down by nearly 80% since its peak in November last year, and now effectively trades below pre-pandemic levels, despite broad-based multifold growth across key segments over the past two years. With the cheap money environment coming to its inevitable end, growth stocks have been at the receiving end, but in the case of Shopify, this selloff may just be an overreaction.
With the substantial rally in the stock of the past two years all but wiped out by recent events, this new low price is a fresh start for investors to get in on this perpetual growth machine. There are plenty of catalysts that lie ahead, mainly the 10-to-1 stock split coming in June, which should kickstart the next growth cycle.
With $7.8 billion in cash, just $1.2 billion in debt, and $500 million in free cash flow, we maintain our Price Target at $1,000. This target is quite doable when investors realize that this growth machine is only in the 2nd inning of a 9-inning game.