Shopify shares plunge as Canadian tech champion reports big loss

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Stocks have fallen 70% this year

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Shopify Inc., the Ottawa-based e-commerce company, said it lost US$1.5 billion in the first quarter, a mediocre result compared to a net profit of US$1.3 billion in the same period a year earlier, building Canada’s most accomplished digital company. technology to further punish investors.

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With such lackluster results, some might question Shopify’s decision to acquire logistics company Deliverr Inc. for US$2.1 billion, a purported purchase confirmed on May 5. independent businesses has not been affected by the 70% drop in the company’s share price this year.

“Today we are announcing the acquisition of Deliverr, our largest acquisition yet, to strengthen Shopify’s fulfillment network and accelerate our path to an end-to-end merchant supply chain solution,” said said Harley Finkelstein, president of Shopify, on a call. with analysts.

The company is focused on improving merchant satisfaction, as its rapid growth in recent years has put it in competition with Amazon.com Inc., the e-commerce giant that trained North American consumers expect prompt delivery.

The founder and managing director of Deliverr Birju Patel in 2020. Photo by Troy Fleece/Regina Leader-Post

“Our goal is not only to level the playing field for independent businesses, but to tip them in their favor – turning their size and agility into a superpower,” said Tobi Lütke, CEO and Co-Founder of Shopify, in a press release. “With Deliverr, Shopify Fulfillment Network will give millions of growing businesses access to a simple, powerful fulfillment platform that will keep their customers happy time and time again.”

Lütke is pushing ahead with its expansion plans without the benefit of the tailwind that has allowed Shopify and other e-commerce companies to collect deals during the COVID-19 shutdowns. Shopify posted first-quarter revenue of $1.2 billion, up 22% from a year earlier, but below consensus analyst expectations of $1.25 billion, according to Bloomberg News.

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Chief Financial Officer Amy Shapero said revenue was being driven by normalizing e-commerce growth now that pandemic-related restrictions have been eased and rising costs from soaring inflation.

Shopify’s stock plunged 16% when markets opened in Toronto.

Although adding Deliverr this year will impact profitability in 2022, it’s worth it

Harley Finkelstein

Deliverr is a big bet for Shopify, but one that could keep it relevant as more established retailers like Amazon and Walmart Inc. continue to grow. Business Insider reported in 2019 that by using Deliverr, “…anyone can now offer free two-day shipping on Walmart.com — and Amazon should be worried.”

“Supply chain management and execution are among the biggest challenges merchants face in running their businesses,” Finkelstein said. “Although the addition of Deliverr this year will impact profitability in 2022, it is worth it,” he added.

The acquisition is part of Shopify’s broader “merchant-obsessed” approach, which tends to prioritize innovation and long-term value creation over short-term profits. “Because Shopify continues to grow its merchant base and develop new products, the business is not currently managed for profit maximization,” said Veritas Investment Research Corp., an independent Canadian investment research firm. actions, in a recent research note.

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“The low level of profitability is not because Shopify has a poor business model, but rather because the company is reinvesting in continued merchant growth and developing new offerings,” said Veritas, which has raised its “buy” recommendation, estimating the stock’s value at around $1,400, compared to its current value on the S&P TSX of around $525.

“The drop in Shopify’s stock price doesn’t change the fact that as a leading e-commerce platform, the company still has opportunities to further monetize its merchant base,” Veritas said.

As to whether Shopify’s development initiatives will ultimately be enough to recoup the company’s losses, Veritas said only time will tell.

“What’s less certain is when Shopify will start generating more meaningful profits and cash flow, particularly if its fulfillment initiative gains traction and requires additional investment.”

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