Tech stock laggard Shopify is running low on ideas. In recent weeks the Canadian ecommerce company has split its stock, extended a tie-up with buy now, pay later company Affirm, pushed into business-to-business sales and partnered with Twitter to launch a new sales channel. But nothing has changed the post-pandemic shift in consumer shopping habits.
In the first quarter of 2022, US online sales topped $231bn, according to Department of Commerce data. That is 14 per cent of total sales. Compare that with the first quarter of the previous year when ecommerce accounted for close to 17 per cent of the total.
Shopify’s pandemic-related growth spurt has come to an end. In 2020 and 2021 it signed big deals with Walmart and Meta. Its payment option was added to TikTok too. Last year, it reached a $212bn market value and was briefly Canada’s most valuable public company. Since then its share price has fallen 80 per cent.
The problem is spending. Shopify used the pandemic to ramp up its lofty goal of challenging Amazon’s ecommerce domination. Spending remains high even as sales are no longer doubling year on year. In the first quarter, Shopify posted a near $1.5bn loss as sales and marketing and R&D costs outpaced revenue growth of 22 per cent. This trend will continue as the group forges ahead with plans to build a logistics platform. In May it bought warehouse company Deliverr for $2.1bn.
Rapid delivery is a worthy addition to Shopify’s services, particularly now. Its own turf is under attack from Amazon, which is offering some merchants the option to use its tools for sales on their own websites. But the reality of slowing sales growth must be taken into account.
Co-founder and chief executive Tobi Lütke’s desire to maintain special voting rights via new shares may have passed but it met with resistance from shareholder groups. The protest should be acknowledged. Proof of prudence is required.
