Shopify stock tumbled Wednesday amid December-quarter earnings, revenue and gross merchandise volume that topped analyst estimates. But management said marketing investments for SHOP stock would rise in 2022 to spur merchant customer growth, with capital spending jumping as well.
The higher investments come as the coronavirus pandemic fades and e-commerce growth normalizes. Canada-based Shopify reported fourth-quarter earnings before the market open on Wednesday.
Shopify is building a U.S. distribution network to store and ship products for its merchant customers. On an earnings call with analysts, management outlined plans to increase investments in the Shopify Fulfillment Network. Shopify aims to provide two-day or less delivery in the U.S.
"Shopify expects capital expenditures related to the fulfillment network to ramp in 2022 and for there to be approximately $1 billion in capex in 2023 and 2024, specifically for key U.S. warehouse hubs," Stifel analyst Scott Devitt said in a note to clients. "The company will invest heavily in consolidating its fulfillment network into larger, more controlled facilities that will provide for better quality control and eventually operational savings."
SHOP Stock: Tough Year-Over-Year Comparisons
Shopify stock tumbled 16% to close at 746.85 on the stock market today.
"The big unknown here is Shopify Fulfillment Network," Evercore ISI analyst Mark Mahaney said in his note to clients. "Now more than ever, investors will have to trust that management is an efficient allocator of capital with the announced investment levels perhaps greater than investors had expected. In this market environment with investors favoring near-term profitability and cash flow we are not entirely surprised to see shares falling hard."
For the quarter ending Dec. 31, Shopify earnings came in at $1.36 cents per share on an adjusted basis, down 14% from the year-earlier period. Revenue rose 41% to $1.38 billion, said the company. Revenue growth decelerated for the third straight quarter.
Analysts expected Shopify earnings of $1.30 a share on revenue of $1.34 billion. A year earlier, Shopify earned $1.58 per share on revenue of $978 million.
Gross merchandise volume from merchant customers rose 31% to $54.1 billion vs. estimates of $53.03 billion.
"Our initial impression is that the absolute results were solid considering the tough comparisons, but they fell short of buyside expectations," said Jefferies analyst Samad Samana in a report. He added that gross profit margin of 50.8% fell shy of the street's 52.8% estimate.
Heading into the Shopify earnings report, the e-commerce stock had retreated 35% in 2022.
In the fourth quarter, Shopify said merchant solutions revenue rose 47% to $1.03 billion. Subscription solutions revenue climbed 26% to $351.2 million. Analysts had projected merchant solutions revenue of $985 million and subscription solutions revenue of $357 million.
Management Provides General Revenue Outlook
For full-year 2022, Shopify said it expects "Year-over-year revenue growth to be lower in the first quarter of 2022 and highest in the fourth quarter of 2022." "We do not expect the COVID-triggered acceleration of ecommerce in the first half of 2021 from lockdowns and government stimulus to repeat in the first half of 2022," the company said.
In addition, Shopify said it expects "Merchant Solutions revenue growth to be more than twice the rate of subscription solutions revenue growth year-over-year, as merchants make greater use of our offerings, and as we expand existing products into new geographies and roll out newer features like Shopify Markets."
Shopify said it plans higher sales and marketing investments as well as $200 million in capital spending in 2022.
In addition, Shopify had nearly $7.8 billion in cash on its balance sheet at the end of 2021.
Shopify sets up e-commerce websites for small businesses, and partners with others to handle digital payments and shipping. Also, the e-commerce firm has stepped up business lending.
Also, Shopify stock had a Relative Strength Rating of 13 out of a possible 99, according to IBD Stock Checkup.
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Follow Reinhardt Krause on Twitter @reinhardtk_tech for updates on 5G wireless, artificial intelligence, cybersecurity and cloud computing.
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