Shopify stock is having one of its worst days as Wall Street wonders what’s next

Shopify Inc. promotions experienced one of the worst days on record on Thursday after financial results did not clear the outlook for 2023.

SHOP,
-15.88%,
which is the backbone of many websites and e-commerce operations, was disappointed with first-quarter earnings guidance on Wednesday afternoon, and executives declined to provide any guidance beyond the current period. Shares fell 15.9% on Thursday, its third-worst session on record and the worst in exactly a year – stocks fell 16% on Feb. 16, 2022 after executives acknowledged growth would slow last year.

The global pandemic has accelerated Shopify’s business in 2020 and 2021, causing the stock to more than quintuple from a March 2020 low to a late 2021 peak. However, that growth was wiped out in 2022, with a year-to-date increase of more than 50% on Thursday, about a halving, and the stock is now up 29.4% year-over-year.

While Shopify easily beat expectations for the holiday quarter in Wednesday’s report, the outlook left a lot to be desired. In particular, analysts were concerned about the lack of clear guidance on first-quarter operating income, although information provided by executives suggested an operating loss even on an adjusted basis, despite the recently announced price increase.

Full revenue coverage: Shopify shares plunge nearly 7% as outlook disappoints amid escalating rivalry with Amazon and rising prices.

The outlook for the first quarter “implies adjusted earnings to be negative even if turnover growth slows,” UBS analysts wrote, wondering if price hikes in the second quarter would help and maintaining a sell recommendation and $32 price target. “2Q could benefit from higher rpm subwoofers with very high additional margins, but after our call back, management made it clear that they have no idea of ​​the impact as sellers can upgrade to annual plans, upgrade to Plus, or move to other platforms. . “.

There was also a problem with what the management said they would not provide. They declined to give a forecast for the full year and said they would no longer report on the number of salespeople, an important metric showing how many customers a company has.

“Unfortunately, investors should not expect more transparency going forward as Shopify will no longer disclose the number of merchants, even as international growth becomes more important,” MoffetNathanson analysts wrote.

“Many investors expected more detailed guidance/comment on [operating income] profitability, which we did not receive, ”said Barclays analysts.

However, the report didn’t seem to change Wall Street analysts’ optimism about Shopify’s long-term prospects. In fact, three analysts raised stocks on Thursday morning while only one downgraded, and 21 of the 48 analysts tracked by FactSet raised their price targets in response to the report, with only two lowering their price targets.

“With 2023 estimates likely to drop, macro numbers may not be as bad as feared a few months ago, and Shopify showing good momentum thanks to key growth initiatives, we like the 2023 setup,” William Blair analysts wrote. while maintaining a “beat” rating. “Stocks are likely to pull back substantially on Thursday…should create a good buying opportunity. While we expect the stock to remain volatile in the short term due to macro issues, we see the potential for a substantial upgrade in the stock’s rating in the long term as investors gain more clarity and confidence on Shopify’s growth trajectory and profitability.”

“After these expectations change in the coming days/weeks, we think investors may realize there is a lot to like going forward,” Barclays analysts wrote, raising their price target to $40 from $30.

But there are still many challenges ahead, including growing competition from Amazon.com Inc.
-2.98%.
However, executives may be looking for collaboration rather than competition, as many analysts wrote that executives told them that Shopify is seeking partners for Amazon and integrating Buy With Prime into its own services.

See Also: Amazon Challenges Shopify as Shopify Stock Loses So Far

“Management said it was in talks with Amazon … about a Buy With Prime integration, although it did not provide details,” analysts at William Blair wrote, while analysts at Barclays wrote that “negotiations for an Amazon/Buy-With-Prime integration are all are still ongoing, which may remain a canopy.

In the end, analysts appeared to be happy with the long-term trajectory but concerned about the immediate results.

“Theoretically, Shopify has the wind in its sails as a democratizing force for online entrepreneurship in a world that increasingly transacts online. In practice, opportunities are offset by short-term questions about margin, buying with Prime, seller growth, capital intensity, and Shopify Fulfillment Network counter-costs,” MoffetNathanson analysts wrote, raising their price target to $32 from $30 and maintaining a “market performance” rating.

According to data from FactSet, after Thursday’s morning notes, 20 analysts rated Shopify’s stock as a “buy”, 25 as a “hold”, and three as a “sell” or equivalent. The average target price was $47.65.

Read more: Shopify on Black Friday: “Cha Ching!”

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