Making sense of the markets this week: February 18, 2024

Shopify struggles

Canada’s second-largest company (or third, depending on the day) had a relatively strong earnings day on Tuesday, but the company’s share price took a beating based mostly on decreased earnings expectations going forward.

Shares of Canada’s tech darling were down over 13% on Tuesday, but even with the massive pullback, the share price is still up 14% year to date (YTD).

Shopify’s CFO Jeff Hoffmeister reported the good news that more products were sold on the Shopify platform than ever before. The fourth quarter included the all-important holiday shopping activity, and Hoffmeister announced that Shopify has moved $75.1 billion-worth of merchandise. That was a 23% increase on last year’s numbers. Net earnings came in at $657 million, compared to a loss of $623 million during the fourth quarter in 2022.

President Harley Finkelstein said Shopify handled the orders for 61 million customers worldwide on the Black Friday weekend. 

“Our platform handled a staggering 967,000 requests per second, which is the same as 58 million requests per minute, nearly 80% higher than our peak traffic just two years ago.”

—Harley Finkelstein

So, where’s the struggle? Growth is not the same as profitability. With Shopify stating its free cash flow is going to be substantially lower than previously indicated, investors were quick to pounce on the bad news.

Finkelstein tried his best to put a positive spin on future growth opportunities.

 “There are opportunities for us to go beyond Europe. Of course, we’ve talked about Latin America and the Asia-Pacific in the past, but we definitely see a lot of opportunity there[…] I mean, we’ve captured less than 1% of market share in global retail sales, even as our product and geographies have expanded.”

There’s no question Shopify’s been an incredibly innovative company, and it is all the more noteworthy for keeping its home base in Canada, despite many tech companies moving shop. It’s very likely the company will be consistently profitable, but trying to forecast the “when” and the “how much” of that long-term profitability is a very difficult endeavour. In this age of higher-for-longer interest rates, investors appear to be demanding durable profits sooner rather than later, and consequently, shareholders will have to buckle up for a bit of a volatile rollercoaster.

Can Shopify keep up the growth momentum while controlling costs? Investors are betting on it. But Tuesday’s dip would indicate that it’s not at all certain about those bets.