Shopify (SHOP) saw its stock price drop sharply after the company issued a lower-than-expected profit outlook for the second quarter, despite continued strong revenue growth. The downward revision was attributed to higher-than-anticipated operating expenses.
The e-commerce platform provides online sales, order management, and payment processing services for merchants. For the second quarter, the company guided for operating expenses to represent 35% to 36% of revenue. It expects gross profit dollar growth to remain in the mid-20% range year-over-year.
This guidance highlights the company's current operational reality: while revenue growth remains robust, increasing costs and a revenue mix shifting toward lower-margin merchant services are persistently weighing on profitability.
Chief Financial Officer Jeff Hoffmeister projected that margin pressures would ease gradually over time. However, he noted that due to a higher year-over-year comparison base, near-term growth rates are expected to moderate.
Analysts had projected second-quarter revenue to reach $3.42 billion, representing a year-over-year increase of nearly 28%. Shopify is actively working to control costs by increasing its internal use of artificial intelligence and optimizing its workforce. Savings from these efforts are being reinvested into other areas of the business, particularly marketing.
"While we can continue to drive efficiency in our cost structure, we will still increase our marketing spend year-over-year," Hoffmeister stated during the earnings call.
Citi analyst Tyler Radke pointed out that the higher-than-expected expenses are significantly impacting the second-quarter profit outlook. "The company's Q2 revenue growth guidance, at over 25% year-over-year, is slightly above the consensus estimate of around 25%. However, costs came in modestly above expectations, resulting in a Q2 profit outlook that is weaker than Wall Street anticipated," Radke wrote in a research note.
Following the announcement, Shopify's stock on the Toronto Stock Exchange fell 9.1% to close at C$157.67, equivalent to $115.72.
For the first quarter, Shopify reported a net loss of $581 million, or a loss of $0.45 per share. This compares to a net loss of $682 million, or a loss of $0.53 per share, in the same period last year, indicating a narrowing of losses. On an adjusted basis, which excludes one-time items, earnings per share were $0.36, surpassing analyst expectations of $0.33.
First-quarter revenue increased to $3.17 billion from $2.36 billion a year ago, exceeding market forecasts of $3.12 billion. This growth was driven by two main segments: Subscription Solutions revenue rose by $130 million to $750 million, and Merchant Solutions revenue, which constitutes the larger portion, grew to $2.42 billion from $1.74 billion. The platform's key metric, Gross Merchandise Volume (GMV), increased to $100.74 billion from $74.75 billion in the prior-year period.
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