Shopify Stock Tanks After Missing Revenue and Earnings Estimates in Q2
Shopify stock is trading lower after the company reported revenue and earnings below estimates in Q2, which disappointed investors.
July 27, 2022

Shares of Canadian e-commerce company Shopify (NYSE: SHOP) are trading significantly lower following its Q2 results. At the time of writing, Shopify stock is down over 4% in pre-market trading on July 27th. 

Shopify just announced its results for the June quarter and reported revenue of $1.3 billion, an increase of 16% year-over-year. Its adjusted loss stood at $38.5 million or $0.03 per share, compared to an adjusted net income of $284.6 million or $0.22 per share in the year-ago period. 

Analysts tracking Shopify forecast sales of $1.32 billion and adjusted earnings of $0.03 in the June quarter. We can see Shopify missed revenue and earnings estimates in Q2, driving the stock lower in the process. 

Yesterday, Shopify shares fell over 14% after the company announced it would trim 10% of its workforce due to slower-than-expected e-commerce demand. Shopify stock is trading 83% below all-time highs after shares peaked in November 2021. 

Let's see what impacted Shopify in Q2 of 2022. 

Shopify's GMV stood at $46.9 billion

Shopify reported its slowest quarterly revenue growth as a publicly listed company. Despite the tepid uptick in sales, its revenue has surged by 53% annually in the last three years. Like several other companies with an established international presence, a strong U.S. dollar negatively impacted Shopify's sales growth by 1.5 percentage points in Q2. 

Shopify ended the quarter with monthly recurring revenue of $107.2 million, an increase of 13% year-over-year due to a larger merchant base. In addition, Shopify Plus accounted for $33.7 million or 31% of total MRR, up from 26% in the year-ago period. 

The company's subscription sales rose 10% to $366.4 million, while gross merchandise volume, or GMV, rose to $46.9 billion in the June quarter. 

Due to the expansion of its research and development efforts as well as Shopify's sales and marketing teams, the company reported an operating loss of $41.8 million in Q2, compared to an operating income of $236.8 million in the year-ago quarter. 

What next for Shopify stock and investors?

The COVID-19 pandemic acted as an essential tailwind for Shopify, allowing it to increase sales by 86% in 2020 and 57% in 2021. Shopify ended 2021 with a net income of $718 million. While growth rates are decelerating, Shopify stock is also trading at a much lower valuation right now. 

In 2021, Shopify's price to sales multiple was hovering around 40x, and the stock is now trading at 6x forward sales. 

Shopify ended Q2 with a cash balance of $7 billion, providing it with enough liquidity to tide over an uncertain economic environment. Further, Shopify continues to widen its suite of products and services, ensuring the expansion of its merchant base, resulting in higher revenue growth. 

Shopify is building a fulfillment network and completed the rollout of a warehouse management system, improving the visibility of buyer orders. In addition, Shopify Payments was launched in France, extending its presence to 18 countries. 

The company also partnered with YouTube to launch YouTube Shopping. This partnership should allow merchants to connect with the platform's two billion users, thereby creating another revenue stream. 

Shopify's near-term performance will be volatile, but the company is part of an expanding addressable market, making it a solid long-term bet. The e-commerce segment accounts for less than 15% of retail sales in the U.S., providing enough room for Shopify to grow revenue over time. 

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