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Shopify rallies with tech stocks despite weaker earnings outlook

Signage on Shopify's former headquarters is shown in Ottawa on Feb. 17, 2022.   (Bloomberg )
By Stefanie Marotta Bloomberg

Shopify rallied, reversing losses in premarket trading, as Chief Executive Officer Tobi Lutke urged investors to overlook the slowdown in e-commerce and focus on the company’s longer-term growth strategy.

Shopify rose 8.4% to $33.20 at 10:14 a.m. in New York amid a broad rally in technology shares.

While the company’s second quarter results missed analyst forecasts, the stock jumped after executives gave more detail on plans to cut expenses and improve services for small-business customers.

The company’s riskiest wager is “the vertical integration of logistics,” Lutke said during a conference call with analysts.

“It’s worth saying it’s a characteristic of innovative companies that they think in bets, in general,” he said.

“I know by there’s generally not a lot of appetite for this kind of risk-taking, but I think our company especially is defined by not following some kind of orthodox playbook.”

In a statement, the company warned of higher operating losses in the second half of the year and said inflation was beginning to hurt the e-commerce sector.

The acquisition of logistics firm Deliverr is one reason for the expected higher losses.

“We now expect 2022 will end up being different, more of a transition year, in which e-commerce has largely reset to the pre-Covid trend line and is now pressured by persistent high inflation,” the Ottawa-based company said.

The weaker outlook – and the company’s decision this week to cut 10% of its workforce – came with an admission from Lutke that executives had misjudged the durability of the pandemic-related boom in online sales and that company’s rapid expansion was unsustainable.

“Ultimately, placing this bet was my call to make and I got this wrong. Now, we have to adjust,” Lutke said in a memo to employees.

“As a consequence, we have to say goodbye to some of you today and I’m deeply sorry for that.”

Ottawa-based Shopify posted a loss of 3 cents per share on an adjusted basis in the second quarter, falling short of estimates for a profit of 3 cents, according to data compiled by Bloomberg.

Revenue rose 16% to $1.3 billion from a year earlier, broadly in line with expectations of $1.33 billion.

Gross merchandise volume – the value of merchant sales flowing through Shopify’s platform – grew 11% to $46.9 billion during the quarter, missing estimates of $48.6 billion.

The worse-than-expected results came one day after Shopify said it would cut about 1,000 jobs, mostly in recruiting, support and sales.

The shift out of pandemic lockdowns, elevated inflation and the threat of a recession have shifted consumer habits.

Retail stocks fell earlier this week after Walmart Inc. made a surprise cut to its profit outlook as surging prices cause consumers to spurn bigger-ticket purchases.