Shopify sinks as investors worry over big spending in weak economy

Shoppers Stop

16/02/2023 17:00

By Nivedita Balu
       Feb 16 (Reuters) - Shares of Shopify Inc  SHOP.N  slid
16% on Thursday after the Canadian tech giant's weak forecast
for first-quarter revenue and higher cost projections amplified
investor concerns over aggressive investments in an economy
facing slowing growth. 
    Pandemic-related disruptions propelled the company to
briefly become Canada's most valuable firm before online demand
eased as economies reopened and forced it to launch new
products, boost investments and focus on social media
integration.
    Such investments and Wednesday's warning on macro-challenges
have spooked investors concerned about profitability.
    Oppenheimer analyst Ken Wong said he was worried about
Shopify's "noncommittal spend" and an operating loss projection
of about $85 million that could dampen investors' expectations
for profitable growth this year.   
    "Our outlook reflects the prudence that we think is
necessary in this macro environment," company president Harley
Finkelstein said in an interview on Thursday. 
    "It is important right now in this particular macro that you
grow the business but you also continue to let revenue fall to
the bottom line," he said. 
    Still, a dozen analysts raised their price targets by as
much as $20, betting on growth prospects as the company attracts
big clients ready to pay premium price for its services, such as
providing tools to set up a website, social media integration
and fulfillment.
    "While Q1 guidance below consensus is negative, Shopify's
execution increases our confidence in the company's ability to
navigate through most macro scenarios," RBC analyst Paul Treiber
said, maintaining an "outperform" rating and raising his price
target to $65 from $55. 
    "The lack of annual guidance suggests limited near-term
visibility to the sustainability of consumer spending," he said.
    Some analysts also flagged Shopify's significant exposure to
categories such as apparel, which could take a hit from
softening consumer spending. 
 (Reporting by Nivedita Balu in Bengaluru; Editing by Sriraj
Kalluvila)
 ((Nivedita.Balu@thomsonreuters.com; Twitter: @niveditabalu;))