Shopify (TSX:SHOP) stock fell a sharp 25% after its first-quarter earnings gave a reality check that the business normalized post-pandemic. Shopify is a Canadian tech stock that enjoys high trading volume. You see seasonal volatility in this stock as the e-commerce industry sees significant shopping activity in November and December due to the holiday season buying.
The May 8th dip came as Shopify reported a first-quarter net loss of US$281 million as compared to US$77 million profit a year ago. What was behind the loss? It was due to the exit of Shopify Logistics business, which it sold to global logistics platform Flexport in June 2023 in return for a 13% stake in the latter.
The post-pandemic Shopify
We all know the Shopify craze during the pandemic, when people purchased everything from electronics to groceries online. The sudden jump in traffic forced Shopify to accelerate its 10-year scale-up in just a year. The company operates an asset-light model.
However, the pandemic made it hire thousands of workers and even start logistic services, which requires more working capital. The company made its first-ever profit, making investors jump with joy. This vertical expansion would have worked if the merchandise volumes had remained high and large organizations had continued to use Shopify’s digital infrastructure.
What happened to airlines during the pandemic (excess capacity became a liability rather than an asset) happened to Shopify post-pandemic. Shopify had to reverse the expansion it made during the pandemic, leading to +1,000 job cuts in 2022 and the sales of the logistics business in 2023. That affected its profits, and Shopify reported a net loss of US$3.46 billion in 2022, more than it gained in 2020 and 2021 combined.
| Year | Revenue | Operating Income | Net Income |
| 2020 | $2.9 Billion | $90.15 Million | $319 Million |
| 2021 | $4.6 Billion | $268.6 Million | $2.9 Billion |
| 2022 | $5.6 Billion | ($822 Million) | ($3.46 Billion) |
| 2023 | $7.06 Billion | ($1.42 Billion) | $132 Million |
The first two quarters are seasonally weak for Shopify. And this year, the company has been overcoming the absence of the logistics business. Hence, it is normal for Shopify to report a loss.
The short-term weakness
Shopify is still feeling the tremors of the post-pandemic. The company expects its +20% year-over-year revenue growth to decelerate to the high teens as it completes a full year of earnings without the logistics business. The second half could see a recovery as interest rate cuts boost consumer spending in the 2024 holiday season. Also, the effect of the logistics business will no longer haunt the revenue and earnings.
In the meantime, Shopify continues to broaden its outreach to enterprise-level solutions to attract big enterprises that bring significant volumes.
The long-term expectation of Shopify
While the pandemic did give Shopify an operational challenge, it strengthened the company’s business. Most businesses improve their model when faced with a crisis. One way to look at Shopify stock is that it withstood the challenge and streamlined its operations. It has tasted profit and is now working towards sustaining it by increasing income streams with Shopify Payments.
Shopify has created an online e-commerce infrastructure, making e-commerce accessible to all retailers, big and small. And it is growing its gross merchandise volume. If Shopify succeeds in building a loyal enterprise-grade client base, it could reach a point where it achieves a breakeven and profits stabilize.
The e-commerce secular trend is here to stay. There are periods of slowdown, but it will pick up momentum as 5G and artificial intelligence take digitization to the next level. The proliferation of the Internet of Things and the metaverse are avenues worth exploring.
Investor takeaway
The post-pandemic Shopify is a stock worth buying like there is no tomorrow. It is trading below $88 at the time of writing. If the stock’s pandemic peak of over $200 was Shopify 10 years later, there is hope for the stock to double your money in the next five to six years.
