The share price of Shopify Inc. showed the largest drop in more than a year after this company, operating in the sphere of e-commerce, published its financial results for the fourth quarter of 2023 and a forecast for the prospects for the first three months of the current year.
In a statement, the mentioned firm, based in Ottawa, notes that operating expenses related to marketing outlays and employee compensation will show a slight increase between January and March 2024. The company published the corresponding forecast on Tuesday, February 13.
Analysts interviewed by the media believe that the operating expenses of the Ottawa-based company will increase by no more than 2% during the first quarter of 2024.
Gil Luria, an analyst at D.A. Davidson & Co., says that Shopify showed significant sales growth last year. At the same time, the company managed to reduce expenses by about 20%. For this reason, the announcement of an increase in expenses in the first quarter of 2024 came as a surprise to investors who did not have the appropriate expectations for the mentioned indicator.
The company’s share price on Tuesday showed a drop of 13%. This dynamic was recorded after a more than twofold increase in this indicator last year.
The company’s revenue for the fourth quarter of 2023 amounted to $2.1 billion. This indicator showed an increase of 24% year-on-year. It is worth noting that analysts expected Shopify’s revenue for the last quarter of 2023 to be $2.08 billion. At the same time, the increase in expenses overshadowed this positive result.
The company’s net income for the fourth quarter of 2023 amounted to $657 million. This figure is a significant achievement against the background of a loss of $623 million for the same period in 2022.
During a phone call with investors, Shopify president Harley Finkelstein said that the company is using marketing opportunities that he believes will pay off in the future. Last year, the firm’s activities were carried out in a cost-cutting mode. For investors, the concept of activity providing for a new financial approach has become what can be described as a reality that they did not expect.
Shopify predicts that in the first quarter of 2024, the company’s revenue will show growth, which will be recorded in the range of 20% to 30%.
In February, the firm decided to increase the cost of its software for online sellers. The company expects this move to allow it to generate over $100 million in additional revenue in 2024. Shopify’s management is also convinced that an increase in the cost of software will not provoke customers to refuse to interact with the brand.
The company has entered into a cooperation agreement with Amazon.com Inc., which will allow sellers to use the Buy with Prime delivery service. Last year, Shopify sold its logistics business to the freight forwarding startup Flexport.
StreetAccount data indicates that gross merchandise volume, or the total volume of merchandise sold on the company’s platform in the fourth quarter of 2023, amounted to $75.1 billion. This indicator showed an increase of 23% year-on-year. The company’s result exceeded Wall Street forecasts for gross sales of $71.6 billion.
Jeff Hoffmeister, chief financial officer of Shopify, says that the mentioned indicator demonstrated the dynamic of the growth against the background of an increase in the number of products sold on the firm’s platform.
Wedbush analysts noted that Shopify management expects operating income to be significantly below their estimates and consensus forecast. The company predicts that the corresponding figure during the first quarter of the current year will be $178 million. In this case, adjusted operating income is assumed. The consensus forecast of analysts is $382 million.
As we have reported earlier, Shopify to Use AI to Give Merchants Competitive Advantage.