Shopify’s Mixed Q2 Results – WWD

Shopify widened its loss in the second quarter but revenues rose due to the company’s expanding client base and growing portfolio of tools provided to those clients.

Shopify’s operating loss was $1.6 billion, which includes $1.7 billion in one-time items from the impairment and acceleration of stock-based compensation related to the sales of logistics businesses, as well as severance. Excluding these onetime charges, operating income was positive for the quarter, the company said Wednesday.

The net loss was $1.31 billion last quarter compared to a loss of $1.2 billion in the year-ago period.

Gross profit was $835 million, up 27 percent from the year-ago quarter. Operating expenses were $2.5 billion including $1.7 billion in onetime items.

“When our merchants do better, we do better,” Finkelstein said. “More of our merchants are taking our new solutions.”

Gross merchandise value, the dollar value of orders running through Shopify’s platform, increased 17 percent to $55 billion, an increase of $8.2 billion over the second quarter of 2022, and up 18 percent on a constant currency basis.

Total revenue increased 31 percent to $1.7 billion compared to the prior year, up 31 percent on a constant currency basis.

Shopify, which has built a global business enabling small entrepreneurs to set up online stores, last January introduced “Commerce Components” where enterprise retailers — those that typically range from $500 million to multiple billions of dollars in GMV — can integrate components of Shopify into their own systems on an à la carte basis.

Last June, Shopify introduced “Collabs Network,” an application that any Shopify merchant can install for free, enabling them to build up a database of creators to work with to acquire customers and build sales, while enabling creators to search for products and connect with brands and retailers they feel best suited to partner with.

“Our business momentum has led to another quarter of strong financial results. We’re not just shipping products faster, but we are also expanding our global merchant base, all while improving our ability to generate greater free cash flow,” said Harley Finkelstein, president of Shopify, said in a statement. “As we lean into the new shape of Shopify, our focus remains on building the world’s best product to empower entrepreneurs and businesses everywhere.”

At the close of the stock market Wednesday, which had its second bad day in a row, Shopify stock was down about 7.5 percent to $62.43. But upon releasing its second-quarter report after the market closed, where revenues exceed expectations, the stock started inching back.

Among the key points Finkelstein made during a conference call with analysts, he said the company experienced its third consecutive quarter of positive free cash flow, which came in at $97 million in the second quarter compared with negative cash flow of $87 million in the year-ago period, and that he expects it to be higher through this year. He also said the company will leverage the power of AI and is building it directly into Shopify features, and that the company is “operating on all cylinders” to bring more of consumers’ favorite brands to Shopify.

Finkelstein also said that Europe, the Middle East and Africa was the region of the world where Shopify saw the fastest growth last quarter, and that 15 percent of Shopify’s total GMV came from cross-border sales.

For the third quarter of 2023, Shopify expects:

  • Revenue to grow at a low-20s percentage rate on a year-over-year basis, which translates into a year-over-year growth rate in the mid-20s, when adjusting for the 300 to 400 basis points headwind from the sale of our logistics businesses.
  • Gross margin percentage to be about 2 to 3 percentage points higher than the second-quarter 2023 gross margin of 49.3 percent.
  • Operating expense dollars to be flat to up slightly compared to the second quarter of 2023’s operating expense dollars, when excluding onetime items from the impairment and accelerated stock-based compensation related to the sale of our logistics businesses and severance from the second quarter.

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