What happened?
The shares of Shopify (TSX: SHOP)(NYSE:SHOP) crashed by more than 18% this morning to as low as $505.18 per share. SHOP stock was already the worst-performing TSX Composite component as of yesterday’s closing with its massive 65% year-to-date losses. After today’s crash, it’s now down by more than 70% in 2022, as it currently hovers at its lowest price level in over two years.
So what?
Today’s crash in Shopify stock came after the company’s released its disappointing first-quarter earnings report before the market opening bell. In the first quarter of 2022, the Canadian e-commerce giant’s total revenue rose by 21.7% YoY (year over year) to US$1.20 billion, missing analysts’ revenue estimate of US$1.25 billion by a narrow margin. This revenue-growth rate was significantly lower than 41% YoY in the previous quarter.
Shopify tried to justify this decline in its YoY revenue-growth rate by highlighting that it registered its highest revenue growth ever in the comparable quarter, Q1 2021. Nonetheless, its dropping YoY growth rate across its monthly recurring revenue, subscription solutions revenue, merchant solutions revenue, and gross merchandise volume still took a big toll on investors’ sentiments.
To add pessimism, Shopify’s adjusted earnings for the quarter plunged by 90% from a year ago to US$0.20 per share, as it bolstered its research and development and stepped up efforts for performance marketing — significantly increasing its operating expenses. With this, the tech firm also missed the Street’s quarterly earnings expectations of about US$0.68 per share by a huge margin. These factors could be responsible for triggering a massive selloff in Shopify stock today.
Now what?
As I noted above, Shopify stock has already been the worst performer on the TSX this year so far, even after excluding today’s big losses. In my opinion, it’s unfair to solely look at its latest YoY growth numbers and say that Shopify’s big growth phase is over — as the temporary COVID-19-related restrictions massively boosted its business growth last year. That’s why this YoY comparison might not give you the real growth picture. That said, its lower-than-expected sales growth still looks worrisome, which could make SHOP stock struggle in the near term.
Overall, I still find Shopify stock very attractive to invest in for the very long term — especially for investors with a good risk appetite, given its increasing focus on expanding its presence in the international market. While the recent rise in its research and development costs and focus on new acquisitions might have hurt its latest results, they might pay off well in the long term by helping Shopify offer better e-commerce solutions to its customers — accelerating growth. That’s why investors may want to keep a close eye on SHOP stock in the coming months and consider adding it to their long-term stock portfolio upon any early sign of a reversal.
