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Shopify Stock Tumbles After Forecasting Slower Revenue Growth

Shopify’s shares were on track to close at their lowest levels since June 2020.
Photo: Chris Wattie/Reuters

Shares of Shopify Inc. tumbled 16% Wednesday, after the e-commerce software provider told investors that the forces that made it one of the biggest winners of the Covid-19 pandemic are starting to slow.

Lockdowns pushed millions of small businesses to open online stores, as retail sales rapidly shifted away from physical stores. U.S. retail e-commerce sales grew 32% in 2020 from the prior year, according to the U.S. Commerce Department.

Shopify,…

Shares of
Shopify Inc.
tumbled 16% Wednesday, after the e-commerce software provider told investors that the forces that made it one of the biggest winners of the Covid-19 pandemic are starting to slow.

Lockdowns pushed millions of small businesses to open online stores, as retail sales rapidly shifted away from physical stores. U.S. retail e-commerce sales grew 32% in 2020 from the prior year, according to the U.S. Commerce Department.

Shopify, which lets merchants create an online storefront quickly, was a big beneficiary of this shift, with its revenue nearly doubling in the second quarter of 2020. It reported 86% revenue growth in 2020 and a 57% increase last year. Shopify said the pace of growth won’t be as robust in 2022.

“We believe that the Covid-triggered acceleration of e-commerce that spilled into the first half of 2021 in the form of lockdowns and government stimulus will be absent from 2022,” Amy Shapero, Shopify’s chief financial officer, said on a call with analysts Wednesday. She added that the company is cautious about the effects of inflation on consumer spending in the near term.

Shares of Shopify, which is based in Canada, are listed in New York and Toronto. The price of its New York-listed shares is down about 56% from its peak in November. The company’s shares closed at their lowest levels since June 2020.

Scott Kessler,
an analyst at research firm Third Bridge, said the selloff reflects investors questioning whether Shopify has the ability to sustain its growth as economies world-wide reopen. “That means people leaving their homes and returning to shopping in stores,” Mr. Kessler said. “Shopify signaled that the year has started relatively slowly.”

Shares of other companies also tumbled Wednesday after their earnings reports.
Roblox Corp.
stock fell 27% as investors worry about the videogame platform’s slowing growth as the pandemic recedes.
ViacomCBS Inc.,
soon to be renamed Paramount Global, stock declined 18% after increased spending on content and marketing sapped the broadcaster’s profit.

When stock prices sell off like they have so far in 2022, investors typically buy bonds to help stabilize portfolios and reduce losses. But right now, bond prices are falling too, leaving investors with nowhere to hide. WSJ’s Dion Rabouin explains. Photo: Brendan McDermid/Reuters

The Wall Street Journal Interactive Edition

Shopify has been expanding its business in recent years to provide more services for merchants, which has brought it further into spaces occupied by payments companies and e-commerce logistics providers. It has developed point-of-sale hardware for retailers, launched a shopping app for its merchants to list products and created a network of fulfillment centers to ship orders for its business partners. Roughly 15 years after it was founded, in October 2019, Shopify announced its one millionth merchant. As of Dec. 31, it had nearly 2.1 million on its platform at the end of 2021. The company said it is ramping up marketing to increase its base of merchants outside North America.

Shopify said it plans to expand and simplify its fulfillment network, so merchants can spend less money managing their inventory and deliver orders more quickly. “Being able to offer [fulfillment services] to 90% of the US, two-day affordable shipping is really the goal,” Shopify President

Harley Finkelstein

told analysts Wednesday.

The company said it expects capital expenditures of $200 million for 2022, outpacing its spending on physical assets from the previous two years combined, according to Mr. Kessler of Third Bridge. Shopify said it plans to spend roughly $1 billion over 2023 and 2024 leasing warehouse hubs throughout the U.S.

In the latest quarter, Shopify swung to a loss of more than $371 million, or $2.95 a share, from a profit of nearly $124 million in the year-earlier period. Higher costs including those tied to sales and marketing and research weighed on Shopify’s profit margins and the latest quarter’s results also included a $510 million loss on its investments.

Excluding special items, Shopify reported a per-share profit of $1.36, compared with analysts’ expectations of $1.30.

Revenue came in at $1.38 billion, up from nearly $978 million a year ago and higher than the consensus forecast of $1.34 billion from analysts.

Write to Charity L. Scott at Charity.Scott@wsj.com

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