Shopify (NYSE:SHOP) has reported 2022 Q1 earnings, and investors are not pleased. The digital e-commerce marketplace emerged as a winner of the initial Covid-19 outbreak of 2020. Since 2021, though, SHOP stock has been on a downward trajectory, shedding 73% of its value over the past six months. Now, a disappointing earnings report has called the company’s long-term and short-term prospects into question.
Let’s take a closer look at Shopify’s recent performance and its path forward.
What’s Happening With SHOP Stock
Shopify’s earnings report fell short of Wall Street predictions in several important categories, sending SHOP stock down. It reported adjusted earnings of 20 cents per share after analysts predicted 64 cents. Although revenue growth year-over-year reached $1.2 billion, an increase of roughly 22%, it still came in below the $1.25 billion Wall Street projection. According to the report, Shopify’s quarterly revenue growth has dipped to its lowest point in almost seven years.
After rising in anticipation of the report, SHOP stock is falling sharply. Shares plunged almost 20% in the first hour of trading, and despite a slight attempt at a rally, they remain deep in the red. As of this writing, SHOP is down almost 17% for the day and is not likely to rebound.
Why It Matters
From the Shopify earnings report, it is clear that the company is battling macroeconomic headwinds. While these disappointing misses don’t mean the company’s time in the spotlight is over, it’s hard not to remember how much higher they were a few years ago. The 22% quarterly revenue increase doesn’t seem as impressive when we compare it to the 100% increase the company reported for the same category in 2020.
It’s true that the industry landscape has shifted greatly since the early trends of the Covid-19 pandemic boosted SHOP stock. Reuters reports that both Amazon (NASDAQ:AMZN) and eBay (NASDAQ:EBAY) have also taken hits as demand for digital e-commerce platforms has declined.
Shopify will have to work hard to adapt if it wants to stay competitive in a marketplace dominated by Amazon. So far, that means expanding its delivery and logistics operations. The company recently announced the acquisition of Deliverr. This U.S.-based delivery service has helped grow the e-commerce operations of major companies such as eBay and Amazon, as well as Shopify, already. The cash and stock deal is worth $2.1 billion and marks the largest acquisition in the company’s history.
While the addition of a dynamic shipping company could certainly boost SHOP stock down the road, it hasn’t been enough to overpower the negative momentum caused by the Q1 earnings report.
What It Means
Investors are definitely nervous following Shopify’s latest numbers. However, as InvestorPlace contributor Chris Lau noted prior to the earnings report, bearish energy has been rising around the sector. When Amazon reported disappointing e-commerce revenue, it didn’t do any favors for its smaller competitors. Now the company’s failure to meet Wall Street expectations has increased the already present shockwaves.
This decline in SHOP stock should be seen as a buy-the-dip opportunity, though. Shopify is taking the steps necessary to adapt and grow in a changing market. It also shouldn’t be forgotten that the company is planning a stock split in the coming months. SHOP stock may not rise again for months, but when it does, it will pull back into the green by substantial numbers. The story here is one not of downfall but of opportunity.
On the date of publication, Samuel O’Brient did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
